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The Balassa-Samuelson Hypothesis in Developed Countries and Emerging Market Economies: Different Outcomes Explained

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Author Info
García Solanes, José
Torrejón-Flores, Fernando

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Abstract

This paper studies the Balassa-Samuelson effects in two areas with strong differences in economic development, sixteen OECD countries and sixteen Latin American economies. The USA is taken as a benchmark. Applying recent panel cointegration and bootstrapping techniques that solve for cross-sectional dependence and small panel size problems, we find some evidence for not rejecting the whole hypothesis in the LA area. In the context of OECD group, the second stage of the BS hypothesis, which relates relative sector prices with the real exchange rate, does not hold, probably because national markets remain to some extent segmented, as reflected in departures from PPP in the tradable sectors.

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Publisher Info
Article provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.

Volume (Year): 3 (2009)
Issue (Month): 2 ()
Pages: 1-24
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Handle: RePEc:zbw:ifweej:7546

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Related research
Keywords: Balassa-Samuelson effect; panel cointegration; cross-sectional dependence; bootstrap; economic development;

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Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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