Robinson condition

The Robinson-condition is one of Joan Robinson developed in 1947 economic theoretical concept that the effect of exchange rate changes on the balance of the current account with the help of supply - and demand - elasticities explained. The approach used here is called the elasticity approach .

Assumptions

The Robinson condition is based on the Marshall-Lerner condition developed in the 1920s , but, in contrast to this, represents an almost universal case.

Derivation

The Robinson condition can be derived from the formal representation of the trade balance . Assuming that exports of domestic in domestic currency and imports from abroad in foreign currency invoices are, then, the trade balance as follows: . and let here be the prices for export or import goods, and their quantities and the exchange rate in price notation . ${\displaystyle HBS=p_{Ex}\cdot X_{Ex}-w\cdot p_{Im}\cdot X_{Im}}$ ${\displaystyle p_{Ex}}$ ${\displaystyle p_{Im}}$ ${\displaystyle X_{Ex}}$ ${\displaystyle X_{Im}}$ ${\displaystyle w}$

After multiple total differentiations as a result of the investigation of individual effects on export and import values, the Robinson condition is obtained: ${\displaystyle {\frac {\eta _{Ex}(1+\varepsilon _{Ex})}{\varepsilon _{Ex}+\eta _{Ex}}}>{\frac {\varepsilon _{Im}(1-\eta _{Im})}{\varepsilon _{Im}+\eta _{Im}}}}$

Here are and demand elasticities for export and import as well and the supply elasticities for export or import. ${\displaystyle \eta _{Ex}}$ ${\displaystyle \eta _{Im}}$ ${\displaystyle \varepsilon _{Ex}}$ ${\displaystyle \varepsilon _{Im}}$

interpretation

If the Robinson condition is fulfilled, a normal reaction of the current account occurs as a result of a change in the exchange rate, i.e. a devaluation leads to an improvement and an appreciation to a deterioration in the current account balance. In general, it can be said that an elastic import demand ( ) causes a normal reaction, while an inelastic import demand ( ) does not lead to a normal reaction. ${\displaystyle \eta _{Im}>1}$ ${\displaystyle \eta _{Im}<1}$