Balassa-Samuelson Hypothesis: A Test For The Turkish Economy
The Balassa-Samuelson (B-S) hypothesis relies on the productivity differential between tradable and non-tradable sectors to explain deviations in purchasing power parity. According to the B-S hypothesis, because productivity growth in tradable sectors is higher than in non-tradable sectors, real wages increase in tradable sectors. On the other hand, because the prices of tradable goods are determined in the world market, tradable prices will not increase. With an assumption of perfect labor mobility within a country, increases in wages in tradable sectors will be reflected in non-tradable sectors as well. However, an increase in wages in non-tradable sectors is not accompanied by an increase in productivity. As a result, the prices of non-tradable goods will increase, leading to an increase in the overall price level and the appreciation of the real exchange rate for the domestic economy. Thus, within this framework, the relative productivity differences in tradable vis-à-vis non-tradable sectors between two countries will determine the long-run changes of the real exchange rate. The Turkish Central Bank in recent years has emphasized the importance of the Balassa-Samuelson hypothesis for Turkey (Inflation Outlook II, 2006). The purpose of this study then, given the increased consideration of the Balassa-Samuelson effect by the Central Bank is to test the hypothesis between Turkey and the Euro-27 area, which includes the majority of Turkey’s main trading partners, for the post-financial liberalization era, using time series methods. Given the dataset and econometric techniques used, the results do not support the B-S hypothesis.
Volume (Year): 12 (2012)
Issue (Month): 4 (December)
|Contact details of provider:|| Postal: |
Phone: (90) (222) 335-0580 x 2743
Fax: (90) (222) 320-1304
Web page: http://www.anadolu.edu.tr/akademik/birim/genelBilgi/205/3429/1
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:and:journl:v:12:y:2012:i:4:p:1-22. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Social Sciences Institute)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.