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7 - Keynes, the Transfer Problem, and Reparations

Published online by Cambridge University Press:  14 December 2023

Patricia Clavin
University of Oxford
Giancarlo Corsetti
University of Cambridge
Maurice Obstfeld
Peterson Institute for International Economics, Washington DC
Adam Tooze
Columbia University, New York
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War reparations have been a common feature in peace settlements for thousands of years. The chapter provides an overview of how historical reparations were paid, and then an overview of the literature on the transfer problem, one hundred years after Keynes started the debate. Whether direct transfers of money or indirect transfers of assets, transfers affect trade flows and future income in the short or the long run. Financing a transfer is a budgetary problem in the short run, and if a country can borrow the money, the constraint is a willingness to pay, not the capacity to pay. But a transfer can also have second-order effects on savings, investments, consumption, and output, because interest rates or the terms of trade might mitigate or exacerbate the economic costs of the transfer. I show that the terms of trade, for the most part, improved in the years following the announcement of reparations, and that sovereign debt markets allowed countries to finance reparations by borrowing.

Publisher: Cambridge University Press
Print publication year: 2024

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