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The Balassa-Samuelson and the capital-intensity hypotheses in a nutshell

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  • Urzúa, Carlos M.

Abstract

By means of duality theory, this paper generalizes the Balassa-Samuelson model as is used to explain the Penn effect; namely, the fact that national price levels tend to rise with per capita national incomes. The generalization made in this paper allows for any technological progress that is Hicks-neutral, Solow-neutral, Harrod-neutral, or any mixture of them. The implications of the enlarged models include, among others, the Balassa-Samuelson scenario, as well as a capital-intensity scenario that resembles Bhagwati’s. Those hypotheses emerge simultaneously when technical changes are, both, Hicksian and Solovian. The paper also presents an alternative model that is used to explain the apparent breakdown of the Penn effect in the case of the lowest-income countries.

Suggested Citation

  • Urzúa, Carlos M., 2020. "The Balassa-Samuelson and the capital-intensity hypotheses in a nutshell," Research in Economics, Elsevier, vol. 74(4), pages 336-343.
  • Handle: RePEc:eee:reecon:v:74:y:2020:i:4:p:336-343
    DOI: 10.1016/j.rie.2020.10.003
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    More about this item

    Keywords

    Penn effect; Balassa-Samuelson hypothesis; Bhagwati hypothesis; Capital-intensity hypothesis; Neutral tecnological progress;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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