Marshall-Lerner Principle

Discipline: Economics

Named after English political economist Alfred Marshall (1842-1924) and Romanian-born economist Abba Lerner (1905-1982), Marshall-Lerner principle states the conditions under which a change in a country's exchange rate will improve its balance of payments.

In its simplest form, Marshall-Lerner principle states that the price elasticity of demand for imports and exports must be greater than unity for improvements to be effected in the balance of payments.

Also see: fundamental disequilibrium, internal and external balance

Source:
A P Lerner, Economics of Control: Principle of Welfare Economics (New York, 1944)

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