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Testing the BalassA-Samuelson hypothesis in two different groups of countries: OECD and Latin America

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  • José García Solanes

    (Universidad de Murcia and CentrA)

  • Fernando Torrejón Flores

    (Universidad de Murcia)

Abstract

This paper studies the Balassa-Samuelson hypothesis (BSH) in the context of two areas with strong differences in economic development, twelve OECD countries and twelve Latin American economies, taking the USA as the benchmark. Applying panel cointegration techniques, we find that while the first stage of the hypothesis, which links productivities and prices, is satisfied in each group of countries, the second stage, which relates relative sector prices with the real exchange rate, only holds in the Latin American area. The failure of the latter in the OECD countries as a whole is reflected in departures from PPP in the tradable sectors.

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Bibliographic Info

Paper provided by Asociación Española de Economía y Finanzas Internacionales in its series Working Papers with number 05-02.

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Length: 32 pages
Date of creation: Jan 2005
Date of revision:
Handle: RePEc:aee:wpaper:0502

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Related research

Keywords: Balassa-Samuelson effect; Panel cointegration; Economic development; Exchange rate systems;

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  1. R. Golinelli & R. Orsi, 2001. "Hungary and Poland," Working Papers 424, Dipartimento Scienze Economiche, Universita' di Bologna.
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  16. Chihwa Kao & Min-Hsien Chiang, 1999. "On the Estimation and Inference of a Cointegrated Regression in Panel Data," Center for Policy Research Working Papers 2, Center for Policy Research, Maxwell School, Syracuse University.
  17. Takatoshi Ito & Peter Isard & Steven Symansky, 1997. "Economic Growth and Real Exchange Rate: An Overview of the Balassa-Samuelson Hypothesis in Asia," NBER Working Papers 5979, National Bureau of Economic Research, Inc.
  18. Balázs Égert & Imed Drine & Kirsten Lommatzsch & Christophe Rault, 2005. "The Balassa-Samuelson Effect in Central and Eastern Europe: Myth or Reality?," Documents de recherche 05-15, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
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Cited by:
  1. García-Solanes, José & Sancho-Portero, F. Israel & Torrejón-Flores, Fernando, 2008. "Beyond the Balassa-Samuelson effect in some new member states of the European Union," Economic Systems, Elsevier, vol. 32(1), pages 17-32, March.

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