Tariffs, Offshoring and Unemployment in A Two‐Country Model. (4th September 2014)

• Record Type: Journal Article
• Authors: Hashimoto, Ken‐ichi
• Is Part Of: Japanese economic review. Volume 66:Number 3(2015:Sep.)
• Page Start: 371
• Page End: 392
• Publication Date: 2014-09-04
• Subjects: Economics -- Periodicals; 330
• DOI: 10.1111/jere.12050
• Languages: English
• ISSNs: 1352-4739

Abstract

<abstract abstract-type="main"> <title> <x xml:space="preserve">Abstract</x> </title> <p>This paper develops a two‐country model that incorporates offshoring opportunities, and analyses the effects of tariffs under economic stagnation in a liquidity trap that causes unemployment. We find that a rise in tariffs on imports of outsourced goods contributes to an increase in employment by inducing a shift in production, but also leads to an appreciation of the real exchange rate that tends to reduce employment. The effect of real exchange rate appreciation dominates the effect of the production shift, and accordingly employment and consumption fall. The effects of tariff adjustments are reversed, however, when there is no liquidity trap and hence no unemployment.</p> </abstract>