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s the Balassa-Samuelson Hypothesis still relevant? Cross-country evidence from 1950 -2017

Author

Listed:
  • Mohammed Ershad HUSSAIN

    (Dillard University, School of Accounting and Financial Economics, New Orleans, LA 70122, USA)

  • Mahfuzul HAQUE

    (ndiana State University, Scott College of Business, Department of Finance, Terre Haute, IN 47809, USA)

Abstract

We revisit the Balassa and Samuelson hypothesis based on the relationship between real exchange rate and total factor productivity relative to the United States and investigate with panel data set of 182 countries from 1950 to 2017. Results, suggest that there is an inverse relationship between the two, an increase in productivity results in an increase in real exchange rate and the findings supports the hypothesis. We use a range of tests including Arellano-Bond Dynamic Panel Data (both fixed and random effect) estimator and findings validates the hypothesis. All these additional tests confirm that the relationship between real exchange rate and relative factor producity are related in the long-run also

Suggested Citation

  • Mohammed Ershad HUSSAIN & Mahfuzul HAQUE, 2020. "s the Balassa-Samuelson Hypothesis still relevant? Cross-country evidence from 1950 -2017," Journal of Economics and Political Economy, EconSciences Journals, vol. 7(3), pages 162-179, September.
    • Handle: RePEc:cvv:journ1:v:7:y:2020:i:3:p:162-179
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    References listed on IDEAS

    as
    1. Luca Antonio Ricci & Gian Maria Milesi-Ferretti & Jaewoo Lee, 2013. "Real Exchange Rates and Fundamentals: A Cross-Country Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(5), pages 845-865, August.
    2. Ronald MacDonald & Luca Ricci, 2001. "PPP and the Balassa Samuelson Effect: the Role of the Distribution Sector," CESifo Working Paper Series 442, CESifo.
    3. Jean-Marc Natal & Tommaso Mancini Griffoli & Christoph Meyer & Attilio Zanetti, 2015. "Determinants of the Swiss Franc Real Exchange Rate," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 151(4), pages 299-331, December.
    4. repec:mcb:jmoncb:v:45:y:2013:i::p:845-865 is not listed on IDEAS
    5. García Solanes, José & Torrejón-Flores, Fernando, 2009. "The Balassa-Samuelson Hypothesis in Developed Countries and Emerging Market Economies: Different Outcomes Explained," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy, vol. 3, pages 1-24.
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    Keywords

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    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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