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International relocation, the real exchange rate and effective demand

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  • Johdo, Wataru
  • Hashimoto, Ken-ichi

Abstract

By introducing an international relocation mechanism into a two-country model, we analyze the effects of an increase in the corporation tax in the richer country on employment and effective demand in both countries. This taxation policy proves to produce not only enterprise relocation, but also depreciation in the real exchange rate. The latter is also shown to dominate the former, such that rich-country employment and effective demand are stimulated. However, the two countries respond in opposing ways regarding enterprise relocation and real exchange rate adjustment. Consequently, employment and effective demand in the poor country will fall.

Suggested Citation

  • Johdo, Wataru & Hashimoto, Ken-ichi, 2009. "International relocation, the real exchange rate and effective demand," Japan and the World Economy, Elsevier, vol. 21(1), pages 39-54, January.
  • Handle: RePEc:eee:japwor:v:21:y:2009:i:1:p:39-54
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Yoshiyasu Ono, 2010. "Trade Policy, Exchange Rate Adjustment and Unemployment," Chapters,in: Globalization and Economic Integration, chapter 7 Edward Elgar Publishing.
    2. Yoshitomo Ogawa & Yoshiyasu Ono, 2016. "The Welfare Effects of Attracting Foreign Direct Investment in the Presence of Unemployment," ISER Discussion Paper 0959, Institute of Social and Economic Research, Osaka University.
    3. Dohwa, Kohjiro, 2014. "Welfare effects of monetary policy in an economy with vertical production and trade: An analysis based on the perspective of local currency pricing," Economic Modelling, Elsevier, vol. 41(C), pages 408-420.
    4. Ryu-ichiro Murota & Yoshiyasu Ono, 2015. "Fiscal Policy under Long-run Stagnation: A New Interpretation of the Multiplier Effect," ISER Discussion Paper 0937, Institute of Social and Economic Research, Osaka University.
    5. Ryu‐ichiro Murota & Yoshiyasu Ono, 2012. "Zero Nominal Interest Rates, Unemployment, Excess Reserves And Deflation In A Liquidity Trap," Metroeconomica, Wiley Blackwell, vol. 63(2), pages 335-357, May.
    6. Ken-ichi Hashimoto, 2015. "Tariffs, Offshoring and Unemployment in A Two-Country Model," The Japanese Economic Review, Japanese Economic Association, vol. 66(3), pages 371-392, September.
    7. Yoshiyasu Ono, 2015. "Growth, Secular Stagnation and Wealth Preference," ISER Discussion Paper 0946, Institute of Social and Economic Research, Osaka University.
    8. Murota, Ryu-ichiro & Ono, Yoshiyasu, 2015. "Fiscal policy under deflationary gap and long-run stagnation: Reinterpretation of Keynesian multipliers," Economic Modelling, Elsevier, vol. 51(C), pages 596-603.

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