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Productivity, Tradability, and the Long-Run Price Puzzle

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Author Info
Paul Bergin
Reuven Glick
Alan M. Taylor

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Abstract

Long-run cross-country price data exhibit a puzzle. Today, richer countries exhibit higher price levels than poorer countries, a stylized fact usually attributed to the Balassa- Samuelson' effect. But looking back fifty years, or more, this effect virtually disappears from the data. What is often assumed to be a universal property is actually quite specific to recent times. What might explain this historical pattern? We adopt a framework where goods are differentiated by tradability and productivity. A model with monopolistic competition, a continuum-of-goods, and endogenous tradability allows for theory and history to be consistent for a wide range of underlying productivity shocks.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10569.

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Date of creation: Jun 2004
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Handle: RePEc:nbr:nberwo:10569

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Find related papers by JEL classification:
F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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References listed on IDEAS
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  1. Hans-Joachim Voth, 2003. "Living Standards during the Industrial Revolution: An Economist's Guide," American Economic Review, American Economic Association, vol. 93(2), pages 221-226, May. [Downloadable!] (restricted)
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  1. Rod Tyers & Iain Bain, 2007. "Appreciating the Renminbi," Departmental Working Papers 2007-09, Australian National University, Economics RSPAS. [Downloadable!]
    Other versions:
  2. Ozlem Inanc & Marios Zachariadis, . "International Price Dispersion and the Direction of Trade," University of Cyprus Working Papers in Economics 2-2006, University of Cyprus Department of Economics. [Downloadable!]
  3. Maria Bas & Ivan Ledezma, 2006. "The impact of trade reforms on the extensive margin of trade," PSE Working Papers 2006-36, PSE (Ecole normale supérieure). [Downloadable!]
  4. Rod Tyers & Jane Golley & Iain Bain, 2007. "China'S Real Exchange Rate Puzzle," CAMA Working Papers 2007-14, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
  5. Mohsin S. Khan & Ehsan U. Choudhri, 2004. "Real Exchange Rates in Developing Countries: Are Balassa-Samuelson Effects Present?," IMF Working Papers 04/188, International Monetary Fund. [Downloadable!]
  6. Isabelle Mejean, 2006. "Can Firms’ Location Decisions Counteract the Balassa-Samuelson Effect?," Working Papers 2006-12, CEPII research center. [Downloadable!]
  7. Paul R. Bergin & Reuven Glick, 2005. "Tradability, productivity, and understanding international economic integration," Working Paper Series 2005-13, Federal Reserve Bank of San Francisco. [Downloadable!]
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