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Purchasing Power Parity among Developing Countries and their Trade-Partners. Evidence from Selected CEEC and Implications for their Membership of EU

Author

Listed:
  • Nikolaos Giannellis

    (University of Crete, Department of Economics, Rethymno, Greece)

  • Athanasios P. Papadopoulos

    (University of Crete, Department of Economics, Rethymno, Greece)

Abstract

The purpose of the paper is twofold. Firstly, we test the validity of the PPP hypothesis for selected CEEC (Czech Republic, Hungary, Poland and Slovak Republic). Secondly, we attempt to define those countries’ trade linkages between Euro Area, US and the rest of the world. By applying univariate unit root tests as well as a multivariate cointegration test, we find stronger evidence of PPP from the latter test. Moreover, any failure to accept PPP cannot be attributed to structural breaks, apart from one case (between Czech Republic and EU). In overall, there is evidence of strong-form PPP in 6 out of the 8 cases, while for the rest two, weak-form PPP is accepted. Thus, we confirm PPP as a long run equilibrium baseline for these exchange rates per EURO. Furthermore, the fact that PPP holds between these countries and Euro Area indicates absence of trade frictions and other barriers. The implied well-developed trade relations are consistent with those countries’ entry into EMU.

Suggested Citation

  • Nikolaos Giannellis & Athanasios P. Papadopoulos, 2006. "Purchasing Power Parity among Developing Countries and their Trade-Partners. Evidence from Selected CEEC and Implications for their Membership of EU," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 9(1), pages 39-56, Summer.
    • Handle: RePEc:ekn:ekonom:v:9:y:2006:i:1:p:39-56
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    Cited by:

    1. Juan Carlos Cuestas, 2009. "Purchasing power parity in Central and Eastern European countries: an analysis of unit roots and nonlinearities," Applied Economics Letters, Taylor & Francis Journals, vol. 16(1), pages 87-94.
    2. Zorica Mladenović & Kosta Josifidis & Slađana Srdić, 2013. "The Purchasing Power Parity in Emerging Europe: Empirical Results Based on Two-Break Analysis," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(2), pages 179-202, April.
    3. Stazka, Agnieszka, 2008. "International parity relations between Poland and Germany: a cointegrated VAR approach," MPRA Paper 24057, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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