The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Marshall–Lerner Condition

  • Murray C. Kemp
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_1071

Abstract

In the comparative-statical calculations of the simplest two-commodity barter theory of international trade, the outcomes invariably depend on the magnitude of the sum of the two import-demand elasticities, one relating to the country under study (the ‘home’ country) and the other to the rest of the world (collectively, the ‘foreign’ country); in particular, the response of a variable to a disturbance will be in one direction if the sum of elasticities is less than minus 1 and in the opposite direction if the sum is greater than minus 1. On the other hand, for some dynamic or ‘disequilibrium’ models of international trade it is a necessary and sufficient condition of local stability that the same sum of elasticities be less than minus 1. Let us define Δ as one plus the sum of the two elasticities of import demand. Then the so-called Marshall–Lerner condition requires that Δ be negative. Evidently the condition provides a link between the comparative-statics of international trade and some forms of trade dynamics. That such a link exists is, of course, the essence of Samuelson’s correspondence principle.

Keywords

Correspondence principle International trade theory Marshall–Lerner condition Terms of trade Transfer problem 

JEL Classifications

F1 
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Bibliography

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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Murray C. Kemp
    • 1
  1. 1.