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Empirical test of the Balassa-Samuelson Effect in Selected African Countries

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  • Eita, Joel Hinaunye
  • Khumalo, Zitsile Zamantungwa
  • Choga, Ireen

Abstract

The purpose of this study investigates the validity of the Balassa-Samuelson effect in selected African countries. The kernel of the Balassa-Samuelson (BS) effect is the relationship between productivity and real exchange rate. The study therefore, estimates the equilibrium real exchange with total factor productivity as the main explanatory variable. The results revealed that Balassa-Samuelson effect holds in the selected African countries. The results show a positive relationship between real exchange rate and productivity. An increase in total factor productivity causes real exchange rate appreciation. An improvement in productivity can cause countries to experience an increase in prices of their products relative to trading partners. The study recommends that the selected African countries should pursue policies that maintain competitive real exchange rate.

Suggested Citation

  • Eita, Joel Hinaunye & Khumalo, Zitsile Zamantungwa & Choga, Ireen, 2020. "Empirical test of the Balassa-Samuelson Effect in Selected African Countries," MPRA Paper 101489, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:101489
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    More about this item

    Keywords

    Real Exchange Rate; Productivity; Balassa-Samuelson Effect;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F30 - International Economics - - International Finance - - - General
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • F39 - International Economics - - International Finance - - - Other

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