MARSHALL-LERNER CONDITION PERFORMANCE AMID TRANSNATIONALIZATION OF WORLD ECONOMY

Abstract

Abstract. The article analyses the impact of FDI inflows and outflows on country’s current
account and trade balance and demonstrates that the presence of investment flows requires
higher import elasticities in absolute terms than stated in the standard version of the Marshall-
Lerner condition. The analytical assessment of the limits of export and import elasticity, depending
on real exchange fluctuations, has been presented, which shows that sum of the absolute
import elasticities in the country and abroad must exceed unit plus an additional value – in common
case the sum of both elasticities must exceed 2 to ensure improvement of the current account
of the country via real depreciation. Solution to this problem allows not only modify the Marshall-
Lerner condition for the transnationalized global economy case, by extending the limits of
macroeconomic analysis and practical application of the results, but also augments the scientific
understanding of the problem in hand.
Key words: FDI, Marshall-Lerner condition, price elasticity, exports, imports, TNC, transnationalization,
GDP, GNP, current account, trade balance.