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Does the Balassa-Samuelson Hypothesis Hold for Asian Countries?. An Empirical Analysis using Panel Data and Cointegration Tests

Listed author(s):
  • Drine, I.
  • Rault, Ch.

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

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File URL: http://www.usc.es/economet/reviews/aeid444.pdf
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Article provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.

Volume (Year): 4 (2004)
Issue (Month): 4 ()
Pages:

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Handle: RePEc:eaa:aeinde:v:4:y:2004:i:1_28
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  15. DeLoach, Stephen B, 2001. "More Evidence in Favor of the Balassa-Samuelson Hypothesis," Review of International Economics, Wiley Blackwell, vol. 9(2), pages 336-342, May.
  16. Peter Pedroni, 2000. "Fully Modified OLS for Heterogeneous Cointegrated Panels," Department of Economics Working Papers 2000-03, Department of Economics, Williams College.
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