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Interpretation of the Marshall-Lerner condition in the Iranian economy
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Atefeh Gholami1   |
| 1- Department of Economics,University of Tehran.Tehran. Iran |
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Abstract: (323 Views) |
This study examines the validity of the Marshall–Lerner condition in the Iranian economy using quarterly data from 2001 to 2024 and three empirical approaches: strucchange and VECM models with and without sanctions and trade restrictions. The strucchange analysis identifies a major structural break in late 2019, associated with intensified U.S. sanctions, multiple exchange rate regimes, and the COVID-19 shock. While imports declined after this break, exports did not respond significantly to exchange rate depreciation due to banking restrictions, limited market access, and structural weaknesses in export-oriented production. The VECM with sanctions shows that the sum of import and export elasticities is below unity, implying that currency depreciation does not improve the trade balance under current constraints. Only under the hypothetical scenario of fully open global trade does the condition hold, with elasticities exceeding unity. These findings indicate that the failure of the Marshall–Lerner condition in Iran stems not from exchange rate dynamics, but from structural barriers such as sanctions, multiple exchange rate practices, heavy import dependence, and limited non-oil export capacity.
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Article number: 3 |
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Full-Text [PDF 1649 kb]
(95 Downloads)
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Type of Study: Empirical Study |
Subject:
Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook (E6)
Received: 2025/09/7 | Accepted: 2025/11/18 | Published: 2025/12/23
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