Hope might be in sight for the UK: The Marshall-Lerner Condition and the J-Curve

This, is an article that discusses about the UK’s sudden increase in imports, representing the J-curve in economic terms. This is because of a sudden increase in overseas demand because of UK’s weak currency. Although the imports are increasing, the weak pound does not improve the exports. Britain has not run into surplus yet. Most analysts are seeing a progress in exports. With this sudden increase in imports, it has shown the “fastest output growth in almost a decade”, states the article. Banks in the UK say that this increase in imports will be helping the UK with the recession.

We could see this situation as a Marshall-Lerner condition. A Marshall-Lerner condition is a condition that states that the “current account will improve after a depreciation if the sum of the price elasticities of demand for imports and exports is greater than 1”. Likewise in the article, the situation being analysed is a condition related to demand as the sudden increase in imports is a result of a the increase in overseas demand. However, the Marhshall-Lerner condition is a medium to long run. A deterioration of trade balance may happen even though overseas demand increases because people overseas do not react immediately and so export demand will take time to change. An initial deterioration of the trade balance follower by an improvement can be drawn in a graph called the J-curve which starts in the deficit area to a surplus area, thus going from negative to a positive area, forming the J-curve.

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