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Time-Series Support for Balassa's Productivity-Bias Hypothesis: Evidence from Korea

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  • Bahmani-Oskooee, Mohsen
  • Rhee, Hyun-Jae

Abstract

In this paper we use the Johansen and Juselius cointegration technique and quarterly data over the period 1979-1993 to test the productivity-bias hypothesis between Korea and four of its major trading partners (Germany, Japan, the United Kingdom, and the United States). The results show that in all four cases the deviation of purchasing-power parity (PPP) from the equilibrium exchange rate has a long-run relationship with the productivity ratios, supporting the notion that as Korea becomes relatively more productive, the Korean won appreciates in real terms. Copyright 1996 by Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 4 (1996)
Issue (Month): 3 (October)
Pages: 364-70

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Handle: RePEc:bla:reviec:v:4:y:1996:i:3:p:364-70

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0965-7576

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Cited by:
  1. Chinn, M.D., 1997. "ON the Won: And Other East Asian Currencies," Papers 97-07, Economisch Institut voor het Midden en Kleinbedrijf-.
  2. Josip Tica & Ivo Družić, 2006. "The Harrod-Balassa-Samuelson Effect: A Survey of Empirical Evidence," EFZG Working Papers Series 0607, Faculty of Economics and Business, University of Zagreb.
  3. Menzie D. Chinn, 1998. "Before the Fall: Were East Asian Currencies Overvalued?," NBER Working Papers 6491, National Bureau of Economic Research, Inc.
  4. Charalambos Pattichis & Mona Kanaan, 2004. "The Balassa-Samuelson Hypothesis and Oil Price Shocks in a Small Open Economy: Evidence from Cyprus," Open Economies Review, Springer, vol. 15(1), pages 45-56, January.
  5. Brock, Philip L., 2011. "The Penn-Balassa-Samuelson effect through the lens of the dependent economy model," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1547-1556, September.
  6. Bahmani-Oskooee, Mohsen & Gelan, Abera, 2006. "Black market exchange rate and the productivity bias hypothesis," Economics Letters, Elsevier, vol. 91(2), pages 243-249, May.
  7. Taylor Mark P. & Sarno Lucio, 2001. "Real Exchange Rate Dynamics in Transition Economies: A Nonlinear Analysis," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 5(3), pages 1-26, October.
  8. Imed Drine & Christophe Rault, 2005. "Can the Balassa-Samuelson theory explain long-run real exchange rate movements in OECD countries?," Applied Financial Economics, Taylor & Francis Journals, vol. 15(8), pages 519-530.

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