Edited by Alan M. Rugman and Gavin Boyd
Willem Thorbecke and Ahmet Tiryaki US consumers are remarkable for their optimism and willingness to spend. Amid peace and war, recovery and recession, stock market booms and corrections, consumer spending remains undeterred. This contrasts with countries such as Japan, where policymakers are at a loss to know how to increase consumption. The higher spending propensities of Americans relative to their trading partners have contributed to the large imbalances in the current account of the balance of payments. As US consumers spend more, they acquire goods from the rest of the world and the rest of the world acquires assets from the US. The flip side of the large current account deficits is the willingness of the rest of the world to hold US assets. If the rest of the world were unwilling to invest in America, the US would have been unable to run large current account deficits, but in recent years it has been an oasis of prosperity in the world economy. Growth and productivity have been high, inflation low, and property rights secure. The US has thus attracted large inflows of foreign capital. The capital inflows have more than offset the outflows of dollars due to the current account deficits, resulting in a strong dollar and a shrunken manufacturing sector. The dollar appreciated 50 per cent in real terms between 1980 and 1985 and has appreciated 60 per cent since 1995. These real appreciations have hit manufacturing firms in the export and import competing sectors hard, and forced...
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