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INTERNATIONAL OUTSOURCING, THE REAL EXCHANGE RATE AND EFFECTIVE DEMAND

INTERNATIONAL OUTSOURCING, THE REAL EXCHANGE RATE AND EFFECTIVE DEMAND ABSTRACT We develop a two‐country model of international trade with outsourcing opportunities, and analyze the effects of outsourcing on employment and effective demand under stagnation. Increased outsourcing proves not only to lower employment but also to depreciate the real exchange rate which has the effect of boosting employment. The latter also dominates the former, such that employment and consumption are stimulated. The home and foreign countries respond in opposite ways, however, to the production shift and the real exchange rate adjustment. Furthermore, we find that the effects of outsourcing on consumption are opposite in the presence, and the absence, of unemployment. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Metroeconomica Wiley

INTERNATIONAL OUTSOURCING, THE REAL EXCHANGE RATE AND EFFECTIVE DEMAND

Metroeconomica , Volume 62 (2) – May 1, 2011

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References (32)

Publisher
Wiley
Copyright
© 2010 Blackwell Publishing Ltd
ISSN
0026-1386
eISSN
1467-999X
DOI
10.1111/j.1467-999X.2010.04110.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT We develop a two‐country model of international trade with outsourcing opportunities, and analyze the effects of outsourcing on employment and effective demand under stagnation. Increased outsourcing proves not only to lower employment but also to depreciate the real exchange rate which has the effect of boosting employment. The latter also dominates the former, such that employment and consumption are stimulated. The home and foreign countries respond in opposite ways, however, to the production shift and the real exchange rate adjustment. Furthermore, we find that the effects of outsourcing on consumption are opposite in the presence, and the absence, of unemployment.

Journal

MetroeconomicaWiley

Published: May 1, 2011

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