Narrow Results

This paper develops a three-country model that incorporates international relocation of firms and explores the macroeconomic effects of deregulation in the services sector by each country. A novel feature of our model is that the international relocation of firms responds to exchange rate movements caused by deregulation shocks in the services sector. From this analysis, it is found that a deregulation shock in a country always benefits the country in spite of the outflows of firms, while it can be detrimental to other two countries, in terms of relative consumption levels.

The lack of comprehensive empirical narratives about the effects of income and price differentials, as well as possible distributional asymmetries on consumption in G7 countries, compelled this study by using both ARDL and Quantile ARDL models. NARDL results indicate that positive shocks in income have significant and positive effects on consumption in all countries. Moreover, evidence from the Quantile ARDL model indicates that positive and significant impacts were momentary except at the 95th quantile of consumption distributions in Canada. Furthermore, price variations negatively affected consumption in all G7 countries and across all distributions, with evidence of panic buying in Italy, the US and at the 5th quantile in Japan. Meanwhile, there is evidence of asymmetric effects from income and price variations on consumption in all G7 countries, whereas the influence of income variations on consumption is heterogeneous in Canada. Moreover, the asymmetric effects of price differentials were consistent across all the distributions in all the countries. Overall, to ensure consumption optimization and by extension, economic growth, differentiated policies to respond to income and price variations at all times are of the essence.