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The Relative Price of Nontraded Goods and Sectoral Total Factor Productivity: An Empirical Investigation

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  • Vikas Kakkar

    (City University of Hong Kong)

Abstract

This paper examines the relationship between the relative price of nontraded goods and sectoral total factor productivities (TFPs) in the context of the Balassa-Samuelson model. With perfect capital mobility internationally and perfect factor mobility domestically, the relative price of nontraded goods is predicted to be independent of preferences over traded and nontraded goods, and completely determined by TFPs in the traded- and nontraded-goods sectors. Panel cointegration and unit root tests, applied to a panel of fourteen OECD economies, indicate that the relative price of nontraded goods and the labor-share-adjusted TFP differential are cointegrated with the unit cointegration vector. © 2003 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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  • Vikas Kakkar, 2003. "The Relative Price of Nontraded Goods and Sectoral Total Factor Productivity: An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 444-452, May.
    • Handle: RePEc:tpr:restat:v:85:y:2003:i:2:p:444-452
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