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The Balassa–Samuelson hypothesis in the developed and developing countries revisited

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  • Wang, Weiguo
  • Xue, Jing
  • Du, Chonghua

Abstract

This paper aims at examining the Balassa–Samuelson (BS) hypothesis in 20 developed and 20 developing countries, respectively. Given the cross-sectional dependence and structural breaks, we develop a new panel cointegration technique which allows for multiple heterogeneous unknown breaks and non-stationary factors. The empirical results show that the BS hypothesis holds in the developed countries, implying that higher productivity growth leads to a real appreciation, but they are cointegrated up to a number of cross-sectional unobserved stochastic trends as factors are non-stationary. However, we find little evidence to support the BS hypothesis in the developing countries and a further research is needed for the reason.

Suggested Citation

  • Wang, Weiguo & Xue, Jing & Du, Chonghua, 2016. "The Balassa–Samuelson hypothesis in the developed and developing countries revisited," Economics Letters, Elsevier, vol. 146(C), pages 33-38.
    • Handle: RePEc:eee:ecolet:v:146:y:2016:i:c:p:33-38
    DOI: 10.1016/j.econlet.2016.07.020
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    Cited by:

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    2. Ferda Halicioglu & Natalya Ketenci, 2018. "Testing the productivity bias hypothesis in Middle East countries," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 45(5), pages 922-931, October.
    3. Dada James Temitope & Olomola Philip Akanni & Ajide Folorunsho Monsur, 2020. "Productivity Bias Hypothesis: New Evidence from Parallel Market Exchange Rate," Economics, Sciendo, vol. 8(1), pages 31-40, June.
    4. Emmanuel Uche & Sunday Ikedinobi Nwamiri, 2022. "Dynamic Effects of Exchange Rate Movements on Productivity Levels: New Evidence From Nigeria Based on NARDL," Journal of Development Policy and Practice, , vol. 7(1), pages 96-111, January.
    5. Chin‐Yoong Wong & Yoke‐Kee Eng, 2022. "Renminbi Appreciation and China's Industrial Upgrading," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 30(3), pages 1-22, May.
    6. Njindan Iyke, Bernard & Odhiambo, Nicholas M., 2017. "An empirical test of the Balassa-Samuelson hypothesis: Evidence from eight middle-income countries in Africa," Economic Systems, Elsevier, vol. 41(2), pages 297-304.
    7. Andrea Ricci, 2016. "Unequal Exchange in International Trade:A General Model," Working Papers 1605, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2016.
    8. Wang, Wenhao & Cheung, Yin-Wong, 2023. "Commodity price effects on currencies," Journal of International Money and Finance, Elsevier, vol. 130(C).

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    More about this item

    Keywords

    Balassa–Samuelson hypothesis; Real exchange rates; Productivity; Panel cointegration; Cross-sectional dependence; Structural breaks;
    All these keywords.

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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