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The Role of Productivity in Economic Growth and Equilibrium

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  • Ordean Olson

Abstract

This study reexamines the evidence for the Balassa-Samuelson effect for the 1985-2007 period. Cointegrating relationships between the real exchange rate and productivity, real price of oil and government spending are estimated using the Johansen and Stock-Watson procedures. The findings show that for each percentage point in the US-Euro area productivity differential there is a three percentage point change in the real dollar/euro valuation. These findings are robust to the estimation methodology, the variables included in the regression, and the sample period. We suggest that economic disequilibrium can result in a decline in economic growth. This study will utilize von Neumann’s “A Model of General Economic Equilibrium” as an economic equilibrium standard.

Suggested Citation

  • Ordean Olson, 2013. "The Role of Productivity in Economic Growth and Equilibrium," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(11), pages 1497-1527.
    • Handle: RePEc:asi:aeafrj:v:3:y:2013:i:11:p:1497-1527:id:1104
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