Marshall-Lerner condition

(redirected from Marshall Lerner)
Also found in: Wikipedia.

Marshall-Lerner Condition

In international trade, a theory stating that if the sum of price elasticity of a country's exports and the price elasticity of its imports is greater than one, a devaluation of that country's currency will improve its balance of trade. Devaluation does not improve the balance of trade if the sum is any lower.

Marshall-Lerner condition

the PRICE ELASTICITY OF DEMAND for IMPORTS and EXPORTS condition that must be satisfied if an EXCHANGE-RATE alteration (DEVALUATION or REVALUATION) is to be successful in removing a balance of payments deficit or surplus.

Specifically, the elasticity values for a successful devaluation, for example, are: demand for imports is price-elastic

demand for exports is price-elastic

How successful the devaluation is thus depends critically on the reaction of import and export volumes to the change in prices implied by the devaluation. If trade volumes are relatively elastic to price changes, the devaluation will be successful; that is, an increase in import prices results in a more than proportionate fall in import volume, reducing the total amount of foreign currency required to finance the import bill, while the decrease in export prices results in a more than proportionate increase in export volume, bringing about an increase in total foreign currency earnings on exports.

By contrast, if trade volumes are relatively inelastic to price changes, the devaluation will not succeed, that is, an increase in import prices results in a less than proportionate fall in import volume, increasing the total amount of foreign currency required to finance the import bill, while the decrease in export prices results in a less than proportionate increase in export volume, bringing about a fall in total foreign currency earnings on exports.

There are, however, a number of other factors that influence the eventual outcome of a devaluation, in particular the extent to which domestic resources are sufficiently mobile to be switched into export-producing and import-substitution industries. See DEVALUATION, BALANCE-OF-PAYMENTS EQUILIBRIUM, PRICE-ELASTICITY OF SUPPLY.

References in periodicals archive ?
Existing empirical evidence with respect to the satisfaction of the Marshall Lerner condition for Pakistan is mixed.
Skechers was represented in the matter by Marshall Lerner, Brad Mattes and Philip Nulud of Kleinberg & Lerner of Los Angeles, California.
Jill Braff And Marshall Lerner Bring Experience And Leadership
PhotoPoint Corporation, the leading online digital photography company, today announced the addition of Jill Braff as the Vice President of Marketing and Marshall Lerner as the Vice President of E-commerce.
SKECHERS is being represented in the lawsuits by Marshall Lerner of Los Angeles-based Kleinberg & Lerner, LLP.

Full browser ?