Question

Why does the J-curve have that shape? Explain carefully using your understanding of the relation between Marshall-Lerner condition and the J-Curve.

Answer 1

J curve effect tells that due to devaluation the trade defect initially worsens in short run and then it starts improving in the medium term and in long run.

This paradoxical result can be explained through Marshall Lerner condition which states that import elasticity of demand plus export elasticity of demand greater than 1 .  

Initially the higher valued imports are affected and in medium run the exports get affected . Thus in medium and long run there is an improvement in trade balance.