The Transfer Problem with Supply Effects: Presumption for Terms of Trade Changes.

With variable labor supply, a transfer's price responses depend on intercountry differences in propensities to consume commodities and leisure, as well as output effects of labor supply changes. This paper reveals a critical link between the transfer's terms of trade effect and the forces that shape trade patterns: namely, differences in consumer preferences, quality and quantity of factor supplies, and production technologies. When trade is based on differences in preferences for either commodity consumption or work, there is strong support for the antiorthodox view on terms of trade changes.