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Test of the Marshall-Lerner Condition for Eight Selected Asian Countries and Policy Implications

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  • Yu Hsing
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    Abstract

    Applying a general functional form, the Marshall-Lerner condition of the bilateral trade between the US and Hong Kong, India, Japan, Korea, Malaysia, Pakistan, Singapore, or Thailand is examined. In deriving the real exchange rate, both the relative consumer price index (CPI) and producer price index (PPI) are considered. The results show that the widely used log-log form can be rejected for Singapore and Malaysia using either the relative CPI or PPI and is also inappropriate for India and Pakistan using the relative PPI. The Marshall-Lerner condition holds for India, Korea, Japan and Pakistan, is confirmed for Hong Kong, Singapore and Thailand using the relative CPI, and cannot be confirmed for Malaysia. Thus, in examining the Marshall-Lerner condition or the exchange rate behavior, non-linearity or the appropriateness of the functional form needs to be tested

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Global Economic Review.

    Volume (Year): 39 (2010)
    Issue (Month): 1 ()
    Pages: 91-98

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    Handle: RePEc:taf:glecrv:v:39:y:2010:i:1:p:91-98

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    Related research

    Keywords: Marshall-Lerner condition; exchange rate; bilateral trade; functional forms;

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    Cited by:
    1. Sastre, Luis, 2012. "Simultaneity between export and import flows and the Marshall–Lerner condition," Economic Modelling, Elsevier, vol. 29(3), pages 879-883.

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