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Persistent wage differential and its implications on the Balassa-Samuelson hypothesis

  • Jeong-Joon Lee

The objective of the study is to empirically examine the wage equalization assumption in the Balassa-Samuelson (BS) hypothesis. The wage equalization between the traded and the non-traded sectors is tested primarily based on resampling methods, permutation tests. The results show that the assumption does not hold uniformly. This study argues that a more general condition, which allows for wage differential between the sectors, can be used in the BS hypothesis as long as the wage differential is persistent. The persistent wage differential condition is empirically supported in this study.

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Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 12 (2005)
Issue (Month): 10 ()
Pages: 643-648

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Handle: RePEc:taf:apeclt:v:12:y:2005:i:10:p:643-648
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  1. Jose De Gregorio & Holger C. Wolf, 1994. "Terms of Trade, Productivity, and the Real Exchange Rate," Working Papers 94-19, New York University, Leonard N. Stern School of Business, Department of Economics.
  2. Menzie David Chinn, 1997. "Sectoral Productivity, Government Spending and Real Exchange Rates: Empirical Evidence for OECD Countries," NBER Working Papers 6017, National Bureau of Economic Research, Inc.
  3. Kennedy, Peter E, 1995. "Randomization Tests in Econometrics," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 85-94, January.
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