CONDITIONS IN WHICH DEVALUATION CAN IMPROVE A COUNTRY’S BALANCE OF PAYMENTS
Devaluation will improve the balance of payment position of a country under the following conditions:
- The elasticity of demand for import, must be elastic. Increase in prices of imports, as result of devaluation will reduce the demand for import.
- The country’s exports must have elastic demand in other countries.
- Other nations must not devalue their own countries.
- For devaluation to be effective there must be no increase in wages and others incomes.