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The Balassa-Samuelson Effect in Romania

Author

Listed:
  • Dedu, Vasile

    (Academy of Economic Studies, Bucharest)

  • Dumitrescu, Bogdan Andrei

    (Academy of Economic Studies, Bucharest)

Abstract

This paper aims to provide estimates of the the Balassa-Samuelson effect in Romania – the extent to which differences in productivity growth between tradables and nontradables industries explain the observed differences in inflation between Romania and the euro area. The Balassa-Samuelson effect has major implications for interpretation of the inflation and the exchange rate criteria for European Monetary Union membership. The conclusion is that the Balassa-Samuelson effect explains only marginally the observed inflation differential. Unlike previous studies which estimated higher values for this effect, this paper considers the productivity differential of each sector and the weight of the tradables sector in Romania in relation to the Euro Area. The results show that there is very unlikely that the productivity differential endangers the nominal convergence criterions.

Suggested Citation

  • Dedu, Vasile & Dumitrescu, Bogdan Andrei, 2010. "The Balassa-Samuelson Effect in Romania," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 44-53, December.
    • Handle: RePEc:rjr:romjef:v::y:2010:i:4:p:44-53
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    File URL: http://www.ipe.ro/rjef/rjef4_10/rjef4_10_4.pdf
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    References listed on IDEAS

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    1. Canzoneri, Matthew B. & Cumby, Robert E. & Diba, Behzad, 1999. "Relative labor productivity and the real exchange rate in the long run: evidence for a panel of OECD countries," Journal of International Economics, Elsevier, vol. 47(2), pages 245-266, April.
    2. Egert, Balazs & Drine, Imed & Lommatzsch, Kirsten & Rault, Christophe, 2003. "The Balassa-Samuelson effect in Central and Eastern Europe: myth or reality?," Journal of Comparative Economics, Elsevier, vol. 31(3), pages 552-572, September.
    3. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584-584.
    4. Egert, Balazs, 2002. "Estimating the impact of the Balassa-Samuelson effect on inflation and the real exchange rate during the transition," Economic Systems, Elsevier, vol. 26(1), pages 1-16, April.
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    Cited by:

    1. Meral KAGITCI & Leonardo BADEA & Vasile Cosmin NICULA, 2021. "The Catch-up Effect of Economic Growth. Evidence from the European Countries," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 76-86, December.
    2. Lenarčič, Črt, 2019. "Inflation – Harrod-Balassa-Samuelson effect in a DSGE model setting," MPRA Paper 101199, University Library of Munich, Germany.
    3. Mirjana Miletić, 2012. "Estimating the Impact of the Balassa-Samuelson Effect in Central and Eastern European Countries: A Revised Analysis of Panel Data Cointegration Tests," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 59(4), pages 475-499, September.
    4. Lenarčič, Črt & Masten, Igor, 2020. "Is there a Harrod-Balassa-Samuelson effect? New panel data evidence from 28 European countries," MPRA Paper 100647, University Library of Munich, Germany.

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    More about this item

    Keywords

    Balassa-Samuelson effect; productivity differential; inflation differential; nominal convergence;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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