Marshall-Lerner condition and economic globalization
AbstractThe analysis considers the impact of FDI inflows and FDI outflows and shows that the presence of (cumulated) FDI requires higher import elasticities in absolute terms than stated in the standard Marshall Lerner condition. One may derive a range for the elasticity of the ratio of exports to imports with respect to the real exchange rate, namely that the sum of the absolute import elasticities at home and abroad must exceed unity plus an addi-tional parameter - for standard special cases the sum of both elasticities must exceed 2 if a real depreciation is to improve the real current account. Not only can one determine a modified Marshall Lerner condition for a world economy with economic globalization, rather one also can get new insights from considering a broader macroeconomic perspective. The insights obtained are highly relevant for the discussion about high deficits of the US and high surplus positions of countries such as Japan, China and Germany. The relevance of real income effects for current account adjustment - much emphasized by McKinnon - is emphasized here in a specific way: there is a direct real income effect of changes of the real exchange rate.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Springer in its journal International Economics and Economic Policy.
Volume (Year): 9 (2012)
Issue (Month): 2 (June)
Contact details of provider:
Web page: http://www.springerlink.com/link.asp?id=111059
Other versions of this item:
- Paul J.J. Welfens, 2009. "Marshall-Lerner Condition and Economic Globalization," EIIW Discussion paper disbei168, Universitätsbibliothek Wuppertal, University Library.
- F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kenneth A. Froot & Jeremy C. Stein, 1992.
"Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach,"
NBER Working Papers
2914, National Bureau of Economic Research, Inc.
- Froot, Kenneth A & Stein, Jeremy C, 1991. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1191-217, November.
- Bussière, Matthieu & Peltonen, Tuomas A., 2008.
"Exchange rate pass-through in the global economy: the role of emerging market economies,"
Working Paper Series
0951, European Central Bank.
- Bussière, Matthieu & Peltonen, Tuomas, 2008. "Exchange rate pass-through in the global economy – the role of emerging market economies," BOFIT Discussion Papers 25/2008, Bank of Finland, Institute for Economies in Transition.
- Richard C. Marston, 1990. "Price Behavior in Japanese and U.S. Manufacturing," NBER Working Papers 3364, National Bureau of Economic Research, Inc.
- Bussière, M. & Delle Chiaie, S. & Peltonen, T. A., 2013. "Exchange Rate Pass-Through in the Global Economy," Working papers 424, Banque de France.
- Mevlud Islami & Paul Welfens, 2013. "Financial market integration, stock markets and exchange rate dynamics in Eastern Europe," International Economics and Economic Policy, Springer, vol. 10(1), pages 47-79, March.
- Sastre, Luis, 2012. "Simultaneity between export and import flows and the Marshall–Lerner condition," Economic Modelling, Elsevier, vol. 29(3), pages 879-883.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.