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Welfare and Public Policy: The Role of Internationalized Production

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  • Hsiao-Lei Chu

Abstract

I incorporate internationalized production, whereby firms hire domestic and foreign production factors, into the model of Corsetti and Pesenti (2001). In contrast to their conclusion, I find that an expansionary monetary shock can be beggar-thy-neighbor and a fiscal shock can improve national welfare. The transmission mechanism of public policy here is different from theirs. In particular, a fiscal shock can affect the short-run exchange rate and generate long-run welfare effects even if it is temporary. Results in this article offer another rationale for international retaliation and coordination. (JEL F30, F40) Copyright 2005, Oxford University Press.

Suggested Citation

  • Hsiao-Lei Chu, 2005. "Welfare and Public Policy: The Role of Internationalized Production," Economic Inquiry, Western Economic Association International, vol. 43(3), pages 542-557, July.
    • Handle: RePEc:oup:ecinqu:v:43:y:2005:i:3:p:542-557
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    File URL: http://hdl.handle.net/10.1093/ei/cbi037
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    Citations

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    Cited by:

    1. Dohwa, Kohjiro, 2024. "The role of local currency pricing in the international transmission effects of a government spending shock in an economy with vertical production linkage and foreign direct investment," Journal of Macroeconomics, Elsevier, vol. 80(C).
    2. Wing Leong Teo, 2009. "Estimated Dynamic Stochastic General Equilibrium Model Of The Taiwanese Economy," Pacific Economic Review, Wiley Blackwell, vol. 14(2), pages 194-231, May.
    3. Wataru Johdo, 2019. "Tariffs, the exchange rate, and location," Economics Bulletin, AccessEcon, vol. 39(2), pages 741-750.
    4. Wataru Johdo, 2013. "Corporate Tax Reductions, Cross-Border Ownership and Welfare," The Japanese Economic Review, Japanese Economic Association, vol. 64(4), pages 484-503, December.
    5. Chu, Hsiao-Lei, 2012. "Monetary policy of a small open economy in the world production chain," Economic Modelling, Elsevier, vol. 29(6), pages 2751-2755.
    6. Wataru Johdo, 2019. "Deregulation in non-tradable goods sector and relocation of firms in tradable goods sector," Economics Bulletin, AccessEcon, vol. 39(4), pages 2507-2516.
    7. Wataru Johdo, 2022. "International worker mobility and the effects of monetary policy shocks," Economics Bulletin, AccessEcon, vol. 42(2), pages 523-535.

    More about this item

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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