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.
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Bibliographic InfoPaper provided by Universitätsbibliothek Wuppertal, University Library in its series EIIW Discussion paper with number disbei168.
Length: 29 Pages
Date of creation: Apr 2009
Date of revision:
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Web page: http://elpub.bib.uni-wuppertal.de
Marshall-Lerner Condition; FDI; Current Account; Globalization;
Other versions of this item:
- Paul Welfens, 2012. "Marshall-Lerner condition and economic globalization," International Economics and Economic Policy, Springer, vol. 9(2), pages 191-207, June.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-02-20 (All new papers)
- NEP-IFN-2010-02-20 (International Finance)
- NEP-INT-2010-02-20 (International Trade)
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.:
- 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.
- 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.
- 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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