The Role of Exchange Rates in International Trade Models: Does the Marshall-Lerner Condition Hold in Albania?

Income and price elasticities account for the size of the transmission among trading partners in real activity. The recent economic slowdown in advanced economies has become a concern for the growth rate in developing countries. Of a particular interest is the role of exports as a source of growth engine. Estimation of income and price elasticities of real trade volumes allows for an evaluation of the extent of such interrelationship and the Marshall- Lerner condition. Results show that while income is the main driver of trade flows in Albania, exchange rate plays a significant role in fostering export growth and substituting imports.