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The Balassa-Samuelson effect in Central and Eastern Europe: myth or reality?

  • Egert, Balazs
  • Drine, Imed
  • Lommatzsch, Kirsten
  • Rault, Christophe

This paper studies the Balassa-Samuelson effect in nine Central and East European countries. Using panel cointegration techniques, we find that productivity growth in the open sector leads to inflation in non-tradable goods. Because of the low share of non-tradables and the high share of food items in addition to regulated prices, the consumer price index is misleading when analyzing the Balassa-Samuelson effect. Consequently, the appreciation of the real exchange rate, which has been established as a stylized fact over the last decade, is caused only partly by the Balassa-Samuelson effect. We identify a trend increase in the prices of tradable goods as a contributing explanation.

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Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 31 (2003)
Issue (Month): 3 (September)
Pages: 552-572

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Handle: RePEc:eee:jcecon:v:31:y:2003:i:3:p:552-572
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622864

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