English, Article edition: GEOGRAPHICAL SPACE AND EFFECTIVE DEMAND UNDER STAGNATION WATARU JOHDO

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Physical Description
  • article
Language
  • English

Edition details

Title
  • GEOGRAPHICAL SPACE AND EFFECTIVE DEMAND UNDER STAGNATION
Author
  • WATARU JOHDO
Physical Description
  • article
Notes
  • This paper investigates the adjustment mechanism between geographical space and effective demand under stagnation by constructing a spatial model with stagnation included. The model takes the idea of stagnation in Ono (2001) and combines it with the spatial model of Perera-Tallo (2003). The spatial model features local monopolists that import intermediate goods from other monopolists at a cost that can be decreased through investment. Using the integrated model, we reach the following conclusion: the wider the geographical space, the lower the effective demand under stagnation. This mechanism is explained as follows. Under stagnation, where demand has reached an upper bound, a decrease in the marginal cost of reaching distant intermediate suppliers reduces employment. The reason is 'love of variety' in production: for given final output, more variety of available intermediate inputs crowds out per-variety demand of intermediates and thus employment. Decreases in employment then lead to a decrease in the rate of time preference through a rise in the deflation rate, and thereby decrease the desire for consumption, consequently cutting effective demand. Copyright 2006 The AuthorsJournal compilation 2006 Blackwell Publishing Ltd/​University of Adelaide and Flinders University .
  • RePEc:bla:ausecp:v:45:y:2006:i:4:p:286-298
Language
  • English
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