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Marshall-Lerner Condition and the Balance of Payments Constrained Growth: The Spanish Case

Luis Sastre ()
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Luis Sastre: Departamento de Teor¨ªa Econ¨®mica y Econom¨ªa Matem¨¢tica, UNED, SPAIN

Review of Economics & Finance, 2018, vol. 13, 29-38

Abstract: This paper develops an analytical reformulation of the Marshall-Lerner condition. This reformation of the Marshall-Lerner condition leads us to reformulate both the Thirwal¡äs model and the Krugman¡äs rule in open economies, under the following terms: in the long run, if the MarshallLerner condition is maintained, the balance of payments constrained growth income not only depends on export and import income elasticities, but also on the cross-elasticity values between exports and imports. The analytical development has a series of implications for empirical studies about the Foreign Sector: export and import functions must be estimated considering the possibility of high cross correlations between them in the modelled countries. In the case of Spain, the longterm estimations of the price elasticities of exports and imports, and the respective cross elasticities, lead us to conclude that currency devaluation would, in the long term, improve the balance of trade and increase the constrained growth income in relation with the strong version of Thirwall¡äs law.

Keywords: Marshall-Lerner condition; Export and import flow simultaneity; Price-elasticity; Cross- elasticity (search for similar items in EconPapers)
JEL-codes: F11 F30 F41 F44 (search for similar items in EconPapers)
Date: 2018
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