"i. The imports become costlier and so their volume reducesii. The exports are encouraged as they become cheaper for the rest of the worldiii. Lesser foreign currency is earned by a given quantity of exportsTherefore, the ultimate effect depends upon how the imports and exports of a country respond to thedepreciation which in turn depends upon the import and export demand elasticity. So, any combination ofexport and import elasticities that satisfies the Marshall-Lerner condition will cause the first two effectsdescribed above to outweigh the third, leading to an improved trade balance. However, one thing to takeinto consideration is that if the supply elasticities are low, then the Marshall-Lerner Condition will only bethe sufficient condition and not the necessary condition.J-curve is an important theory related with the Marshall – Lerner Condition. This says that immediatelyafter the devaluation of the currency, the BOP may worsen because domestic currency prices of importsrise faster than the fall in export prices. Therefore, the quantity does not change immediately. So, initiallythe BOP deficit may rise and then after some time it starts increasing. Thus, this takes shape of the J- curve.The liaison of exchange rate and trade balance is an imperative basis for the foreign policy of any country.According to Classical economic theory, the affiliation of exchange rate and trade balance can to a greatextent be explained by Marshall-Lerner condition and J-curve. Majority of the studies assessing the impactof currency depreciation on the external account of a country have focused on the well known Marshall- Lerner condition, which is a long run effect and the J-curve shows the balance of trade pattern followingthe devaluation.Figure 1: J-curve and Trade Balance+veT 10 T 2Time-ve Upto T , the BOP worsens1 After T , BOP starts improving1 At T , BOP deficits becomes zero2 After T , Bop starts improving2 So, as visible in the diagram above, when the real depreciation of the currency takes place, the BOT willworsen for short- period but eventually the BOT will improve and supposedly should never reach back tothe pre-depreciation level. However, due to the paucity of the accurate data, in order to analyze the tradebalance, Marshall –Lerner Condition and the import and export elasticities are used.Hence, the major objectives of this research study are as follows:a. To compare the exports and import pattern of India, Pakistan and Sri Lanka with respect tothe policies and the economic scenariosb. To scrutinize India, Pakistan and Sri Lanka’s international trade using the Marshal-LernerCondition model.c. To focus on the strengths and bottlenecks faced by India, Pakistan and Sri Lanka. 2. LITERATURE REVIEWAn in depth literature review has been done and it was observed that very few studies have been done toestimate the Marshall –Lerner Condition in thesecountries. However, many economists all over the worldhave tried to scrutinize these two concepts. The countries where the J-curve pattern was clearly depictedwere Italy (1992-1993), Mexico (1994-1995), Korea(1997-1998) and Poland (2009). European ERMcrisis in 1992 actually helped the Italy’s economy to improve the BOP after 1992 second quarter as itscurrency devalued. Moreover, in the case of Mexico in 1995, through a combination of devaluation andexpenditure reducing policies, the large trade deficits were quickly converted into the large tradesurpluses. The same was the case with Korea in 1998(Council of Economic Advisers,1998).The empirical assessment of these conditions encompasses a wealthy heritage and numerous studies haveattempted to find the nature of the relationship between exchange rate volatility and trade. The studiesth th conducted in the 18 and 19 century mainly used the least square methods to guesstimate priceelasticities in import and export equations and many of thembent mixed results (Khan 1974, Goldsteinand Khan 1985, Wilson and Takacs 1979, Warner and Kreinin 1983, Bahmani-Oskooee 1986, Krugmanand Baldwin 1987).But, these theories are mainly criticized because they did not check the stationaritiesof the data and hence the result seemed to be biased. As a result, recently modern econometric techniquesimplyingnon-stationarities and reduced-form equation in the data has been used and many studiesresulted to support the ML condition (Bahmani-Oskooee 1998, Bahmani-Oskooee and Niroomand 1998,Caporale and Chui 1999, Boyd, Caporale and Smith, 2001). A vast review of literature has been done to understand the work done in this vital field.A broad- spectrum acuity is that a nominal devaluation can trim down trade imbalances only if it translates into areal one and if trade flows respond to relative prices in a momentous and conventional manner (Reinhart,1995). A devaluation of the domestic currency will be lucrative and beneficial for the economy by "