Does the Balassa-Samuelson Hypothesis Hold for Asian Countries?. An Empirical Analysis using Panel Data and Cointegration Tests
This paper tests empirically the Balassa-Samuelson (BS) hypothesis using annual data for 6 Asian countries. We apply new panel data cointegration techniques recently developed by Pedroni (2000, 2004) and we compare the results with those obtained with conventional Johansen (1995)’s time series cointegration tests. Whereas, standard time series approach turns out to be able to put in evidence a significant long-run relationship between real exchange rate and productivity differential; this relationship is strongly rejected for all countries using recent advances in the econometrics of non-stationary dynamic panel methods. Closer exminations of the three key components of the BS hypothesis enable us to identify clearly the causes of this empirical failure. We find that the absence of a positive long-run relationship between productivity differential and relative prices is the reason for this rejection
Volume (Year): 4 (2004)
Issue (Month): 4 ()
|Contact details of provider:|| Web page: http://www.usc.es/economet/eaa.htm |
|Order Information:|| Web: http://www.usc.es/economet/info.htm Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ashok Parikh & Elizabeth Wakerly, 2000. "Real exchange rates and unit root tests," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(3), pages 478-490, 09.
- Bahmani-Oskooee, Mohsen, 1992. "A Time-Series Approach to Test the Productivity Bias Hypothesis in Purchasing Power Parity," Kyklos, Wiley Blackwell, vol. 45(2), pages 227-36.
- Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992.
"Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?,"
Journal of Econometrics,
Elsevier, vol. 54(1-3), pages 159-178.
- Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
- Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
- Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992.
"Efficient Tests for an Autoregressive Unit Root,"
NBER Technical Working Papers
0130, National Bureau of Economic Research, Inc.
- DeLoach, Stephen B, 2001. "More Evidence in Favor of the Balassa-Samuelson Hypothesis," Review of International Economics, Wiley Blackwell, vol. 9(2), pages 336-42, May.
- Breitung, Jörg & Pesaran, Mohammad Hashem, 2005.
"Unit roots and cointegration in panels,"
Discussion Paper Series 1: Economic Studies
2005,42, Deutsche Bundesbank, Research Centre.
- Breitung, J. & Pesaran, M.H., 2005. "Unit Roots and Cointegration in Panels," Cambridge Working Papers in Economics 0535, Faculty of Economics, University of Cambridge.
- Joerg Breitung & M. Hashem Pesaran, 2005. "Unit Roots and Cointegration in Panels," CESifo Working Paper Series 1565, CESifo Group Munich.
- Jörg Breitung & M. Hashem Pesaran, 2005. "Unit Roots and Cointegration in Panels," IEPR Working Papers 05.32, Institute of Economic Policy Research (IEPR).
- Imed Drine & Christophe Rault, 2003. "Do panel data permit the rescue of the Balassa-Samuelson hypothesis for Latin American countries?," Applied Economics, Taylor & Francis Journals, vol. 35(3), pages 351-359.
- Kenneth Rogoff, 1992.
"Traded Goods Consumption Smoothing and the Random Walk Behavior of the Real Exchange Rate,"
NBER Working Papers
4119, National Bureau of Economic Research, Inc.
- Kenneth Rogoff, 1992. "Traded Goods Consumption Smoothing and the Random Walk Behavior of the Real Exchange Rate," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 10(2), pages 1-29, November.
- Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
- Pasaran, M.H. & Im, K.S. & Shin, Y., 1995.
"Testing for Unit Roots in Heterogeneous Panels,"
Cambridge Working Papers in Economics
9526, Faculty of Economics, University of Cambridge.
- Engel, C., 1996.
"Accounting for U.S. Real Exchange Rate Changes,"
96-02, University of Washington, Department of Economics.
- Charles Engel, 1995. "Accounting for U.S. Real Exchange Rate Changes," NBER Working Papers 5394, National Bureau of Economic Research, Inc.
- Engel, C., 1996. "Accounting for U.S. Real Exchange Rate Changes," Discussion Papers in Economics at the University of Washington 96-02, Department of Economics at the University of Washington.
- Papell, David H., 1997. "Searching for stationarity: Purchasing power parity under the current float," Journal of International Economics, Elsevier, vol. 43(3-4), pages 313-332, November.
- Fleissig, Adrian R. & Strauss, Jack, 2000. "Panel unit root tests of purchasing power parity for price indices," Journal of International Money and Finance, Elsevier, vol. 19(4), pages 489-506, August.
- Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, March.
- Cottani, Joaquin A & Cavallo, Domingo F & Khan, M Shahbaz, 1990. "Real Exchange Rate Behavior and Economic Performance in LDCs," Economic Development and Cultural Change, University of Chicago Press, vol. 39(1), pages 61-76, October.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Patrick K. Asea, 1994. "The Balassa-Samuelson Model: A General Equilibrium Appraisal," UCLA Economics Working Papers 709, UCLA Department of Economics.
- Peter Pedroni, 2000.
"Fully Modified OLS for Heterogeneous Cointegrated Panels,"
Department of Economics Working Papers
2000-03, Department of Economics, Williams College.
- Tom Doan, . "PANELFM: RATS procedure to perform panel data group mean FMOLS," Statistical Software Components RTS00151, Boston College Department of Economics.
- Asea, Patrick K & Mendoza, Enrique G, 1994. "The Balassa-Samuelson Model: A General-Equilibrium Appraisal," Review of International Economics, Wiley Blackwell, vol. 2(3), pages 244-67, October.
- Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, August.
- Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002.
"Unit root tests in panel data: asymptotic and finite-sample properties,"
Journal of Econometrics,
Elsevier, vol. 108(1), pages 1-24, May.
- Tom Doan, . "LEVINLIN: RATS procedure to perform Levin-Lin-Chu test for unit roots in panel data," Statistical Software Components RTS00242, Boston College Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:eaa:aeinde:v:4:y:2004:i:1_28. 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: (M. Carmen Guisan)
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.