Economic Growth and Real Exchange Rate: An Overview of the Balassa-Samuelson Hypothesis in Asia
AbstractThe paper tests the Balassa-Samuelson hypothesis (rapid economic growth is accompanied by real exchange rate appreciation because of differential productivity growth between tradable and nontradable sectors) using data of the APEC economies. Japan, Korea, Taiwan and, to a lesser extent, Hong Kong and Singapore, were proved to follow the Balassa-Samuelson path. These countries follow a similar industrialization pattern, increasing the weight of high value-added exports. Although Hong Kong and Singapore grew fast, their real exchange rates appreciated only moderately. High productivity growth in service sectors might have been the reason for this. Other fast-growing ASEAN countries, such as Thailand, Indonesia and Malaysia did not experience real appreciation. Closer examinations of various components of the Balassa-Samuelson hypothesis revealed that key assumptions are not uniformly supported: There is no uniform pattern for the movement of nontradable prices relative to tradable prices; and tradable prices (measured by common currency) do not show the international arbitrage.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5979.
Date of creation: Mar 1997
Date of revision:
Publication status: published as Takatoshi Ito, Peter Isard, Steven Symansky. "Economic Growth and Real Exchange Rate: An Overview of the Balassa-Samuelson Hypothesis in Asia ," in Takatoshi Ito and Anne O. Krueger, editors, "Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and Policy Issues (NBER-EASE volume 7)" University of Chicago Press (1999)
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Other versions of this item:
- Takatoshi Ito & Peter Isard & Steven Symansky, 1999. "Economic Growth and Real Exchange Rate: An Overview of the Balassa-Samuelson Hypothesis in Asia," NBER Chapters, in: Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and Policy Issues (NBER-EASE volume 7), pages 109-132 National Bureau of Economic Research, Inc.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- F31 - International Economics - - International Finance - - - Foreign Exchange
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