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A Test of the Balassa-Samuelson Effect Applied to Chinese Regional Data

  • Guo, Qian

    ()

    (Business School, Loughborough University, Ashby Road, Loughborough LE11 3TU, UK, Phone: 44(0)1509223177)

  • Hall, Stephen G.

    ()

    (Department of Economics, University of Leicester, University Road, Leicester LE1 7RH, UK, Phone: 44(0)1162522827 Fax: 44(0)1162522908 E-mail: s.g.hall@le.ac.uk; National Institute of Economic and Social Research, 2 Dean Trench Street, Smith Square, London, SW1P 3HE, UK, Phone: 44(0)2076541929 Fax: 44(0)2076541900)

In this paper, we investigate the relevance of the Balassa-Samuelson effect to the determination of regional inflation in China, for the period 1985 – 2000. To do this, we first construct annual measures of Chinese inflation and industry input on regional and sectoral basis. Then we generalise the Asea and Mendoza (1994) settings to consider asymmetric productivity shocks across sectors. Testing this model on Chinese Regional Data aid of non-stationary panel data techniques, it shows that our extended theoretical model is a good empirical representation of the Chinese data that supports the Balassa-Samuelson effect. Moreover, we are able to test the Asea and Mendoza (1994) version of our general model and find that the restrictions are rejected.

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Article provided by Institute for Economic Forecasting in its journal Romanian Journal for Economic Forecasting.

Volume (Year): (2010)
Issue (Month): 2 (July)
Pages: 57-78

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Handle: RePEc:rjr:romjef:v::y:2010:i:2:p:57-78
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