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The real exchange rate and productivity differentials: a panel cointegration approach

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  • Vishal Jaunky

Abstract

Balassa (1964) and Samuelson (1964) have expressed the view that economic development is normally accompanied by a real exchange rate appreciation. The aim of the study is twofold: first, we investigate whether the Balassa-Samuelson (BS) hypothesis holds, and second we appraise the performance of the commonly used productivity differentials proxy. Results from the Prais and Winsten (1954), Im, Pesaran and Shin (2003) and McCoskey and Kao (2001) panel data techniques suggest that it is legitimate to consider the BS hypothesis at different stages of economic development. Additionally, the proxy works quite well.

Suggested Citation

  • Vishal Jaunky, 2007. "The real exchange rate and productivity differentials: a panel cointegration approach," Applied Economics Letters, Taylor & Francis Journals, vol. 15(4), pages 313-318.
  • Handle: RePEc:taf:apeclt:v:15:y:2007:i:4:p:313-318
    DOI: 10.1080/13504850500461670
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    1. S. Micossi & Gian M Milesi-Ferretti, 1994. "Real Exchange Rates and the Prices of Nontradable Goods," IMF Working Papers 94/19, International Monetary Fund.
    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.
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