Testing the Marshall-Lerner condition in Kenya

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Periodical article

Title:	Testing the Marshall-Lerner condition in Kenya
Authors:	Caporale, Guglielmo Maria Gil-Alana, Luis Alberiko Mudida, Robert
Year:	2015
Periodical:	South African Journal of Economics (ISSN 0038-2280)
Volume:	83
Issue:	2
Pages:	253-268
Language:	English
Geographic term:	Kenya
Subjects:	exchange rates exports imports economic models
External link:	https://doi.org/10.1111/saje.12052
Abstract:	In this paper the authors examine the Marshall-Lerner (ML) condition for the Kenyan economy. In particular, they use quarterly data on the log of real exchange rates, export/import ratio and relative (US) income for the time period 1996q1-2011q4, and employ techniques based on the concept of long memory or long-range dependence. Specifically, they use fractional integration and cointegration methods, which are more general than standard approaches based exclusively on integer degrees of differentiation. The results indicate that there exists a well-defined, cointegrating relationship linking the balance of payments to the real exchange rate and relative income, and that the ML condition is satisfied in the long run, although the convergence process is relatively slow. They also imply that a moderate depreciation of the Kenyan shilling may have a stabilising influence on the balance of trade through the current account without the need for high interest rates. Bibliogr., notes, ref., sum. [Journal abstract]