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Balassa-Samuelson Meets South Eastern Europe, the CIS and Turkey: A Close Encounter of the Third Kind?

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  • Balázs Égert

Abstract

This paper investigates the importance of the Balassa-Samuelson effect for two acceding countries (Bulgaria and Romania), two accession countries (Croatia and Turkey) and two CIS countries (Russia and Ukraine). The paper first studies the basic assumptions of the Balassa-Samuelson effect using yearly data, and then undertakes an econometric analysis of the assumptions on the basis of monthly data. The results suggest that for most of the countries, there is either amplification or attenuation, implying that any increase in the open sector's productivity feeds onto changes in the relative price of non-tradables either imperfectly or in an over-proportionate manner. With these results as a background, the size of the Balassa-Samuelson effect is derived. For this purpose, a number of different sectoral classification schemes are used to group sectors into open and closed sectors, which makes a difference for some of the countries. The Balassa-Samuelson effect is found to play only a limited role for inflation and real exchange rate determination, and it seems to be roughly in line with earlier findings for the eight new EU member states of Central and Eastern Europe

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Bibliographic Info

Article provided by Cattaneo University (LIUC) in its journal The European Journal of Comparative Economics.

Volume (Year): 2 (2005)
Issue (Month): 2 (December)
Pages: 221-243

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Handle: RePEc:liu:liucej:v:2:y:2005:i:2:p:221-243

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Keywords: Balassa-Samuelson effect; productivity; inflation; real exchange rate; transition; South Eastern Europe; CIS; Turkey;

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  1. Balázs Égert, & László Halpern & Ronald MacDonald, 2005. "Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan wp793, William Davidson Institute at the University of Michigan.
  2. Hans-Werner Sinn & Michael Reutter, 2001. "The Minimum Inflation Rate for Euroland," NBER Working Papers 8085, National Bureau of Economic Research, Inc.
  3. Broeck, Mark De & Sløk, Torsten, 2001. "Interpreting real exchange rate movements in transition countries," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 7/2001, Bank of Finland, Institute for Economies in Transition.
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  6. Vladislav Flek & Lenka Markova & Jiri Podpiera, 2002. "Sectoral Productivity and Real Exchange Rate Appreciation: Much Ado about Nothing?," Working Papers, Czech National Bank, Research Department 2002/04, Czech National Bank, Research Department.
  7. Christoph Fischer, 2004. "Real currency appreciation in accession countries: Balassa-Samuelson and investment demand," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 140(2), pages 179-210, June.
  8. Buiter, Willem H & Grafe, Clemens, 2002. "Anchor, Float or Abandon Ship: Exchange Rate Regimes for Accession Countries," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3184, C.E.P.R. Discussion Papers.
  9. Lojschová, Adriana, 2003. "Estimating the Impact of the Balassa-Samuelson Effect in Transition Economies," Economics Series, Institute for Advanced Studies 140, Institute for Advanced Studies.
  10. Roberto Golinelli & Renzo Orsi, 2002. "Modelling Inflation in EU Accession Countries: The Case of the Czech Republic, Hungary and Poland," Eastward Enlargement of the Euro-zone Working Papers, Free University Berlin, Jean Monnet Centre of Excellence wp09, Free University Berlin, Jean Monnet Centre of Excellence, revised 01 Aug 2002.
  11. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
  12. Martin Wagner & Jaroslava Hlouskova, 2004. "What's Really the Story with this Balassa-Samuelson Effect in the CEECs?," Diskussionsschriften, Universitaet Bern, Departement Volkswirtschaft dp0416, Universitaet Bern, Departement Volkswirtschaft.
  13. International Monetary Fund, 2003. "Competitiveness in the Baltics in the Run-Up to EU Accession," IMF Staff Country Reports, International Monetary Fund 03/114, International Monetary Fund.
  14. Nikolay Nenovsky & Kalina Dimitrova, 2002. "Dual Inflation Under the Currency Board: The Challenges of Bulgarian EU Accession," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 487, William Davidson Institute at the University of Michigan.
  15. Ronald MacDonald & Cezary Wójcik, 2003. "Catching Up: The Role of Demand, Supply and Regulated Price Effects on the Real Exchange Rates of Four Accession Countries," CESifo Working Paper Series 899, CESifo Group Munich.
  16. Kornélia Krajnyák & Jeromin Zettelmeyer, 1998. "Competitiveness in Transition Economies: What Scope for Real Appreciation?," IMF Staff Papers, Palgrave Macmillan, vol. 45(2), pages 309-362, June.
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Cited by:
  1. Lopcu, Kenan & Dülger, Fikret & Burgaç, Almıla, 2013. "Relative productivity increases and the appreciation of the Turkish lira," Economic Modelling, Elsevier, Elsevier, vol. 35(C), pages 614-621.

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