Trade & Open Economy · intermediate
What moves on the J-Curve (Trade Balance after Depreciation) diagram
The Marshall-Lerner condition says a depreciationdepreciationThe wearing out of capital over time, or, for currencies, a fall in value against others. improves the trade balance only if export and import demand elasticities sum beyond one; the more elastic, the shorter and shallower the J.
The depth and length of the J depend on one thing: how elastic trade volumes are.
Suppose exporters have spare capacity and buyers switch quickly.
The curve steepens and crosses zero months earlier: the Marshall-Lerner condition biting fast.
With very inelastic trade, the same depreciationdepreciationThe wearing out of capital over time, or, for currencies, a fall in value against others. could leave the balance underwater for years.
Examiners ask this as: elastic exports, fast adjustment, marshall lerner, quick recovery, flexible supply chains.
Other scenarios on J-Curve (Trade Balance after Depreciation)