The BOP is a summary of all international transaction of a country and its citizens during one financial year. So friends, in today’s article we are going to know about Marshall Lerner Condition. So let’s discuss in details.
What is Marshall Lerner Condition?
Marshall Lerner Condition states that, devaluation will improve the balance of payments of a country. If the sum of elasticities of demand for a country’s exports and of its demand for a countries imports is greater than one (1).
It can be expressed as follows –
ex + em > 1
If ex + em < 1, then the devaluation will disturbs the balance of payment position.
If ex + em = 1 then the devaluation will not have any direct effect on the BOPs of a country.
The Marshall-learner condition can specify the situations in which devaluation can successfully improve the balance of trade and the balance of payments. These conditions are mentioned below –
• If the sum of elasticities of demand for exports and imports is greater than unity, devaluation improve the balance of payments (i.e., reduce deficit).
• If the sum of these elasticity co-efficient is equal to unity, devaluation will leave the balance of trade and payments unchanged.
• If the sum of these elasticity co-efficient is less than unity, devaluation can cause the worsening of the balance of payments (i.e., increase deficit).
Conclusion
So friends, this was the concept of Marshall Lerner Condition. Hope you get the full details about it and hope you like this article.
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