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Purchasing Power Parity And Productivity-Bias Hypothesis

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  • Tri WIDODO

    (Economics Department, Faculty of Economics and Business, Universitas Gadjah Mada, Jl. Sosio Humaniora No. 1, Bulaksumur, Yogyakarta, 55281, Indonesia)

Abstract

This paper examines the purchasing power parity (PPP) theorem adjusted the “productivity-bias hypothesis” or the Balassa-Samuelson effect (Balassa, 1964; Samuelson, 1964) for eight East Asian countries including Japan, New Industrializing Economies (NIE-3: Singapore; Hong Kong, China; and Korea), the ASEAN-3 (Malaysia, Indonesia and the Philippines) and the People’s Republic of China (PRC). This paper applies three methods of analysis i.e. univariate time series, multivariate regression and Johansen multivariate cointegration. The three methods give the same conclusions. First, the PPP hypothesis does not hold in the case of the eight East Asian countries. Second, non-traded goods give significant contribution on the PPP deviation. It is confirmed by the existence of Balassa-Samuelson effect.

Suggested Citation

  • Tri WIDODO, 2015. "Purchasing Power Parity And Productivity-Bias Hypothesis," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 16, pages 9-38, December.
  • Handle: RePEc:aic:revebs:y:2015:d:16:widodot
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    References listed on IDEAS

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    More about this item

    Keywords

    Purchasing Power Parity (PPP); Balassa-Samuelson Effect; Cointegration;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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