Journal Article

Demand and distribution in integrated economies

Armon Rezai

in Cambridge Journal of Economics

Published on behalf of Cambridge Political Economy Society

Volume 39, issue 5, pages 1399-1414
Published in print September 2015 | ISSN: 0309-166X
Published online November 2014 | e-ISSN: 1464-3545 | DOI: https://dx.doi.org/10.1093/cje/beu060
Demand and distribution in integrated economies

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  • International Trade
  • General Aggregative Models
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Aggregate demand is influenced by the functional distribution of income of an economy and that of its trading partner. The relationship between income distribution and output is analysed in a short-run, two-country neo-Kaleckian model. The effects of devaluation and redistribution are discussed in detail. Trade and redistribution within one country interact and output increases or decreases with changes in either depending on the specific distributional and exchange rate movements. The Marshall–Lerner condition is shown to be equivalent to the assumption of expansionary devaluation. If devaluation increases output, national redistribution policy towards wage earners is also more likely to be expansionary.

Keywords: Open economy; Adding-up constraints; International macroeconomics; Devaluation; Growth; Distribution; E12; F15; F32; F41

Journal Article.  8292 words. 

Subjects: International Trade ; General Aggregative Models ; Macroeconomic Aspects of International Trade and Finance ; International Finance

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