Hope might be in sight for the UK: The Marshall-Lerner Condition and the J-Curve
In reccent times, the Uk has found itself in a current account deficit, as the amount of imports dramatically increased.
According to the Marshell-Lerner condition, this should mean the Price Elasticity of Imports plus the price elasticity of exports should be more than 1. However, this is only work if the demand for imports is elastic. The Marshell-Lerner theory is that if the
se are the conditions, then the current account will improve.
Using the J-curve, a general trend for the current account problem of the UK can be determined. The idea is that things will be worse before they get better. As the market adjusts, the current account deficit will get worse. As you can see from the graph, in the long run, this will lead to a current account surplus.
