Abstract
It is often argued that US demand expansion and the US current account deficit have been ‘supporting’ world demand and hence output and employment outside the United States. A country that runs a deficit is said to be making a ‘contribution’ to the world economy while Japan and Germany, with their surpluses, are failing to do so and deserve some reprimand. More generally, even when current accounts stay constant, it is sometimes argued that economic expansion in one country benefits its trading partners by allowing them to expand, this being the so-called ‘locomotive theory’. Similarly, a country that contracts demand is damaging its neighbours. All this is believed to be true even when exchange rates float or are readily adjusted since all the recent discussions have taken place in a floating exchange rate context.
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References
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© 1988 National Economic Development Office
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Corden, W.M. (1988). How Valid is International Keynesianism?. In: Eltis, W., Sinclair, P. (eds) Keynes and Economic Policy. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-10338-6_18
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DOI: https://doi.org/10.1007/978-1-349-10338-6_18
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