Absorption (Economy) – Wikipedia

L’ absorption is a concept of macroeconomics and national accounts designating the share of national income which is devoted to inner expenditure. It consists of consumption, investment, gross fixed capital training and stock variation. The term is sometimes used in place of the business merger term to designate the integration of one company bought by another.

In national accounts [ modifier | Modifier and code ]

Absorption is the final domestic demand, that is to say the sum of private and public consumption and investment ^{[ first ]} . It is formalized as follows:

A = C + I + G

Where A is absorption is private consumption, I is investment, and G is public expenditure.

The country’s internal deficit is the difference between absorption and GDP, or that between investment and interior savings ^{[ 2 ]} . In other words, the balance of the trade balance is equal to the national product less absorption (that is to say GDP-national demand). Obtaining an exportable surplus results in a positive trade balance balance (B> 0) ^{[ 3 ]} .

If domestic absorption is greater than national income, that is to say that demand and investment are greater than income, then the economy must be funded using external funding ^{[ first ]} .

The absorption refers by extension to an approach to the adjustment of the balance of payments. Indeed, controlling internal demand is then a necessary condition for the success of a devaluation.

Alexander theory in macroeconomics [ modifier | Modifier and code ]

Absorption is the subject of economic analyzes by the IMF. The theory of Alexander’s absorption indicates that a indebted economy, which accumulates external deficits, must reduce its absorption (that is to say its inner expenditure) below its inner production in order to identify a net surplus exportable ^{[ 4 ]} .

The theory of absorption concerns the effects of a devaluation on large variables (employment, consumption, investment). In principle, a devaluation leads to a favorable variation in the trade balance, in the event that the marginal propensity to be absorbed is less than 1 (Marshall-Lerner condition) ^{[ 5 ]} .

A negative absorption capacity, that is to say an inferiority of national income from domestic consumption, leads to the balance of payments in the red and makes the country dependent on international funding. An economic policy aimed at increasing absorption can take several forms. It may be a question of increasing the volume of exports (by gaining competitiveness), reducing imports, lowering public spending, slowing wages ^{[ 4 ]} .