The Marshall-Lerner condition explains that a depreciation of a country’s currency will only improve its current account balance under a specific requirement.

This condition states that the sum of the price elasticities of demand for exports and imports must be greater than one. In simpler terms:

• When a currency loses value, exports become cheaper for foreigners and imports become more expensive for locals.
• The condition is met if the increase in export revenue and the decrease in spending on imports are large enough to offset the higher costs of those goods.

For example, if the demand for a country’s exports is very sensitive to price changes (highly price-elastic), a devaluation will significantly increase export volumes, helping to improve the current account.