E31, f4, o1 this paper was produced as part of the centres macro programme. The central claim of balassasamuelson is that nontradables explain. The balassa samuelson effect, also known as harrod balassa samuelson effect kravis and lipsey 1983, the ricardovinerharrod balassa samuelson pennbhagwati effect samuelson 1994, p. Mihaljek, d, klau, m 2003 the balassasamuelson effect in central europe. Real appreciation and the balassasamuelson effect in central.
Goods that can be easily shipped sell for roughly the same price everywherethere are differences due to taxes and transportation costs and such things. Google scholar nijkamp, p 2016 the resourceful region a new conceptualization of regional development strategies. Jun, 20 in this paper, using a twocountry, twosector international real business cycle model, which closely follows stockman and tesar 1995 and benigno and thoenissen 2008, we show that the balassa samuelson effect only explains the penn effect either for a sufficiently high trade elasticity or for a low degree of home bias. Let fnk n,l n be the production of nonradable sector. Harrod balassa samuelson effect, real exchange rate, purchasing power parity, productivity jel classification e31, f31, f41. In common with bergin et al 2006, however, we find that balassa samuelson has strengthened over recent decades. Balassasamuelson effect bela balassa and paul samuelson 1964 lower price of goods in the non traded sector in developing countries is mainly due to lower labour productivity in the traded goods sector compared to developed countries. The estimated total effect of productivity on the real exchange rate may thus include not only the pure balassasamuelson effect, but also the investment demand effect. The balassa samuelson bs hypothesisstated by both balassa 1964 and samuelson 1964, with a research precedent in the work of harrod 1933is one of the most widespread explanations for structural deviations from purchasing power parity ppp. This paper investigates the impact of the distribution sector on the real exchange rate, controlling for the balassasamuelson effect, as well as other macro. The balassasamuelson bs hypothesisstated by both balassa 1964 and samuelson 1964, with a research precedent in the work of harrod 1933is one of the most widespread explanations for structural deviations from purchasing power parity ppp. Balassasamuelson effects since supply shocks are the main influence on real exchange rates over the longer run.
Cep discussion paper no 1056 june 2011 the pennbalassa. Different measures of real exchange rate are presented in order to provide arguments for the balassa samuelson effect estimation using external real exchange rate measure. This paper presents new evidence on this issue based on a panel data sample of 16 developing countries. Balassa samuelson eect an application of the specic factor model hisahiro naito division of. Balassasamuelson, penn effect, developing countries, nonparametric estimation, purchasing power parity, real exchange rate jel classifications. Overall, our dols estimation results do not support the bs hypothesis. In this paper, using a twocountry, twosector international real business cycle model, which closely follows stockman and tesar 1995 and benigno and thoenissen 2008, we show that the balassasamuelson effect only explains the penn effect either for a sufficiently high trade elasticity or for a low degree of home bias. May 14, 2001 this paper investigates the impact of the distribution sector on the real exchange rate, controlling for the balassa samuelson effect, as well as other macro variables.
Keywords balassa samuelson effect, regional inflation, spatial econometric models, transaction costs references altissimo, f, ehrmann, m, smets, f 2006 inflation persistence and pricesetting behavior in the euro area. The balassasamuelson effect is why i always get a haircut when visiting a developing country. Ax is the parameter that shows the productivity of the tradable sectors. K x and k n are specic capital for good x sector and good n sector. This paper provides evidence that the priceincome relation is actually nonlinear and turns. First, econometric tests of the balassasamuelson effect suggest that the most robust link is found between relative sectoral deflators and relative unit labour costs. There is little empirical research on whether balassasamuelson effects can explain the longrun behavior of real exchange rates in developing countries. The balassasamuelson effect arises when productivity growth of the. Paper presents a firsthand examination of the balassa samuelson effect in slovenia.
Demand shocks play a significant but less pronounced role in the majority of the countries examined. Why south africa is cheap for the rich and expensive for. Tutorial 3 balassa samuelson effect ruhruniversity. The standard balassasamuelson model has three assumptions. The paper finds that the tradednontraded productivity differential is a significant determinant of the relative price of nontraded goods. To download this and other policy insights visit structural inflation and. Two alternative names were also in use during the seventies. Harrodbalassasamuelson effect, real exchange rate, purchasing power parity, productivity jel classification e31, f31, f41. The balassasamuelson effect and inflation in the chinese. Samuelson effect see balassa 1964 and samuelson 1964, discussed in some detail in.
This paper investigates the impact of the distribution sector on the real exchange rate, controlling for the balassasamuelson effect, as well as other macro variables. This paper explores the robustness of the balassa samuelson bs hypothesis. F eb w o r k i n g p a p e r s e r i e s 06 0 7 page 5 of 38 it is curious how things get rediscovered in economics bela balassa 1973, pp. Using data since 1820 for the us, the uk and france, we test for the presence of real effects on the equilibrium real exchange rate the harrod. C22, f11, f31 modelling the balassa samuelson efec t in australia. Regional inflation, spatial locations and the balassa. This paper aims to provide estimates of the the balassasamuelson effect in romania the extent to which differences in productivity growth between tradables and. Earlier studies that estimated the balassasamuelson effect to be larger have often neglected to consider the impact of productivity differentials on inflation. Balassa provided empirical evidence that the real price structure of a large group of countries shows a systematic correlation with the level of percapita income. This paper deals with the balassasamuelson effect in romania. Assume that the technological level of nontradable sector are the same across countries. Some fear that the balassasamuelson bs effect might be a major obstacle for the central and eastern european countries ceec to become members of the economic and monetary union emu. Balassa and samuelson also examined the effect that deviations of exchange rates from ppp have on intercountry income comparisons.
Estimating the impact of the balassasamuelson effect in. Pdf the balassasamuelson effect in romania researchgate. The conclusion is that the balassasamuelson effect explains only marginally the observed inflation differential. Balassa samuelson effects since supply shocks are the main influence on real exchange rates over the longer run. This paper deals with the balassa samuelson effect in romania. The operation of the balassasamuelson effect in the slovak economy ing. The paper argues that the balassasamuelson effect is of little importance for the inflation target of the ecb. Empirical testing of balassasamuelson hypothesis with. The survey encompasses the published empirical work on the phenomenon since its rediscovery in 1964. Chowdhury, khorshed, modelling the balassa samuelson effect in australia, australasian accounting, business and finance journal modelling the balassa samuelson efec t in australia khorshed chowdhury 0 2 recommended citation 0 university of wollongong 1 school of economics university of wollongong 2 jel classification. Efectul balassasamuelson in romania munich personal. Some fear that the balassa samuelson bs effect might be a major obstacle for the central and eastern european countries ceec to become members of the economic and monetary union emu. An application of the specic factor model hisahiro naito. Using the cointegration technique, the main conclusions of the paper are that in the period 19982006 the average annual rate of inflation generated by the balassa samuelson effect in romania was between 0.
The balassasamuelson effect is employed to explain the observed differences in inflation between the chinese provinces. The paper surveys empirical evidence on the harrodbalassasamuelson effect. The paper extends previous work by clarifying testable hypotheses, ie, the international and domestic versions of the balassasamuelson effect, and by considering a disaggregated. Pdf the pennbalassasamuelson effect vy ly academia. Using the cointegration technique, the main conclusions of the paper are that in the period 19982006 the average annual rate of inflation generated by the balassasamuelson effect in romania was between 0. Anna vladova, the national bank of slovakia the balassasamuelson effect hereinafter referred to as the bs effect is based on the claim that a differing growth of productivity and a simultaneous identical growth of wages in the.
Mar 31, 2018 the balassa samuelson effect is why i always get a haircut when visiting a developing country. Different measures of real exchange rate are presented in order to provide arguments for the balassasamuelson effect estimation using external real exchange rate measure. The results of the estimation show evidence of this inverse balassa samuelson effect for agriculture and manufacturing and in particular mining. A b s t r a c t the penn balassa samuelson effect is the stylized fact about the positive correlation between crosscountry price level and percapita income. Section four provides a panel test of balassa samuelson. In total, 58 empirical papers are examined within a specialized analytical framework. The paper surveys empirical evidence on the harrod balassa samuelson effect. This paper explores the robustness of the balassasamuelson bs hypothesis. Countries with high productivity growth also experience high wage growth, which leads to higher real exchange rates. The balassasamuelson effect and inflation in the chinese provinces. This has nothing to do with the balassasamuelson effect at all. C22, f11, f31 modelling the balassasamuelson efec t in australia.
For the most part, the findings confirm the earlier. The main result is that an increase in the productivity and competitiveness of the distribution sector with respect to foreign countries leads to an. Chowdhury, khorshed, modelling the balassasamuelson effect in australia, australasian accounting, business and finance journal modelling the balassasamuelson efec t in australia khorshed chowdhury 0 2 recommended citation 0 university of wollongong 1 school of economics university of wollongong 2 jel classification. The producitivities of hair cut and resturants are the. Longrun coefficients are estimated using a panel dynamic ols estimator. Modelling the balassasamuelson effect in australia pdf.
Efectul balassasamuelson in romania munich personal repec. The survey encompasses the published empirical work on the phenomenon since its re. The balassasamuelson bs hypothesisstated by both balassa 1964 and samuelson 1964, with a research precedent in the work of harrod 1933is one of the most widespread explanations for structural deviations from purchasing power parity ppp footnote 1 according to the bs hypothesis, differences in the productivity differential between the nontradable and the tradable. Second, we obtain strong evidence of nonlinear adjustment in the shortrun. This inverse balassasamuelson effect has important distributional consequences. This study compares the pppbased amu deviation indicator with the one adjusted by the balassasamuelson effect.
This phenomenon is best known as the balassasamuelson effect. The balassasamuelson effect is a pattern wherein countries with high productivity and wage growth also experience higher real exchange. Balassa samuelson model2 let ax fxk x,l x be the productution function of good x. There are a lot of studies that test ballasa samuelson hypothesis also known as harrodbalassasamuelson effect directly via the effect of productivity, one possible explanation is that per capita gdp is not good explanation for productivity. The body of empirical evidence is synthesized through four major elements. The balassasamuelson effect, also known as harrodbalassasamuelson effect kravis and lipsey 1983, the ricardovinerharrodbalassasamuelsonpennbhagwati effect samuelson 1994, p. This inverse balassa samuelson effect has important distributional consequences. Why south africa is cheap for the rich and expensive for the. Real exchange rate, balassasamuelson hypothesis, panel data. The standard balassa samuelson model has three assumptions. The entire working paper series may be downloaded free of charge at. The balassa samuelson effect from the 1970s to the 1990s since sectorspecific data for oecd countries on total factor productivity tfp have become available through the release of the discontinued international sectoral database isdb by the oecd, various studies have tested the bs hypothesis in panel data for the years after bretton woods. L x and ln are labor used in good x sector and good n sector.
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