The Marshall-Lerner condition in the international economy is an inequality that answers the question of the ratio between real exports and imports to an improvement in the trade balance (an increase in the current account ). It was named after the economists Alfred Marshall and Abba Lerner [1] .
In accordance with the Marshall-Lerner condition, a decrease in the value of the national currency ( devaluation ) leads to an improvement in the trade balance if the sum of the absolute elasticities of the national demand for imports and foreign demand for national exports is more than one: where - elasticity of demand for exports, and - elasticity of demand for imports.
Suppose that the elasticity of export demand is 1. This happens when the demand for exported goods and services rises at the same rate as the price denominated in foreign currency. In this case, devaluation (reduction in the value of the national currency) does not affect the volume of export earnings in foreign currency. Suppose that the demand for imports is elastic, that is, its volume depends on the price expressed in national currency. In this case, devaluation (reduction in the value of the national currency) reduces the volume of imports and, therefore, net exports increase. Net exports will also increase if the elasticity of imports is one and the export also has some elasticity, or if each of the elasticities exceeds ½ [2] .
Notes
- ↑ Kireev A.P. Marshall-Lerner Condition // International Economics. In 2 hours, Part II. International macroeconomics: an open economy and macroeconomic programming. - Textbook for universities. - M .: International Relations, 2000. - S. 71-72. - 488 p. - ISBN 5-7133-1028-0 .
- ↑ Miklashevskaya N.A., Kholopov A.V. Marshall-Lerner condition // International Economics. - The textbook. - M. , 1997.