A Test of the Balassa-Samuelson Effect Applied to Chinese Regional Data

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A Test of the Balassa-Samuelson Effect Applied to Chinese Regional Data

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Stephen G Hall ()
Qian Guo

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Stephen George Hall

Abstract

In this paper we investigate the relevance of the Balassa-Samuelson effect to the determination of regional inflation in China, for the period 1985 – 2000. To do this, we first construct annual measures of Chinese inflation and industry input on regional and sectoral basis. Then we generalize the Asea and Mendoza (1994) settings to consider asymmetric productivity shocks across sectors. Testing this model on Chinese Regional Data aid of non-stationary panel data techniques, it shows that our extended theoretical model is a good empirical representation of the Chinese data which supports the Balassa- Samuelson effect. Moreover, we are able to test the Asea and Mendoza (1994) version of our general model and find that the restrictions are rejected.

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Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 08/8.

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Date of creation: Mar 2008
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Handle: RePEc:lec:leecon:08/8

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This paper has been announced in the following NEP Reports:

NEP-ALL-2008-03-25 (All new papers)
NEP-CBA-2008-03-25 (Central Banking)
NEP-CNA-2008-03-25 (China)
NEP-DEV-2008-03-25 (Development)
NEP-GEO-2008-03-25 (Economic Geography)
NEP-TRA-2008-03-25 (Transition Economics)

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