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Purchasing power parity: Evidence from developing Countries

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  • Emmanuel Anoruo
  • Habtu Braha
  • Yusuf Ahmad

Abstract

This paper utilizes the dynamic error-correction model (DECM) to examine the issue of purchasing power parity (PPP) for 11 developing countries (Argentina, Bolivia, Colombia, Cote d'Ivoire, Ecuador, Guatemala, Kenya, Nigeria, Peru, South Africa, and Venezuela). For comparison purposes, evidence from the traditional unit root methods of the augmented Dickey-Fuller (ADF) and Phillips-Perron is presented. The results from the conventional unit root tests failed to find evidence of PPP in all of the cases. However, the results from the generalized error-correction model detected evidence of PPP for nine out of the 11 countries under consideration. Based on these results, it was concluded that PPP holds in the long-run for the sample countries and that the implicit restrictions associated with unit root tests prevented earlier studies from finding evidence in support of PPP theory. Copyright International Atlantic Economic Society 2002

Suggested Citation

  • Emmanuel Anoruo & Habtu Braha & Yusuf Ahmad, 2002. "Purchasing power parity: Evidence from developing Countries," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 8(2), pages 85-96, May.
    • Handle: RePEc:kap:iaecre:v:8:y:2002:i:2:p:85-96:10.1007/bf02295339
    DOI: 10.1007/BF02295339
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    Cited by:

    1. Alejandro D. Jacobo & Simón Sosvilla‐Rivero, 2021. "An empirical examination of purchasing power parity: Argentina 1810–2016," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2064-2073, April.
    2. Arize, Augustine C. & Malindretos, John & Nam, Kiseok, 2010. "Cointegration, dynamic structure, and the validity of purchasing power parity in African countries," International Review of Economics & Finance, Elsevier, vol. 19(4), pages 755-768, October.
    3. Yu Hsing, 2004. "Response of Venezuelan output to monetary policy, deficit spending, and currency depreciation: a VAR model," Revista de Economía del Rosario, Universidad del Rosario, December.
    4. Arize, Augustine C. & Malindretos, John & Ghosh, Dilip, 2015. "Purchasing power parity-symmetry and proportionality: Evidence from 116 countries," International Review of Economics & Finance, Elsevier, vol. 37(C), pages 69-85.
    5. HSING, Yu, 2006. "Determinants Of Exchange Rate Fluctuations For Venezuela: Application Of An Extended Mundell-Fleming Model," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(1).

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