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Do panel data permit the rescue of the Balassa-Samuelson hypothesis for Latin American countries?

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  • Imed Drine
  • Christophe Rault

Abstract

This paper tests empirically the Balassa-Samuelson (BS) hypothesis (i.e. rapid economic growth is accompanied by real exchange rate appreciation because of differential productivity growth between tradable and non-tradable sectors) using annual data for twenty Latin American countries. The paper applies new panel data unit-root tests proposed by Im et al. (Discussion paper, University of Cambridge, June 1997) and new panel data cointegration techniques suggested by Pedroni (Oxford Bulletin of Economics and Statistics, 1999) and the results are compared with those obtained with conventional time series unit-roots and cointegration tests. The main finding is that whereas a standard time series approach rejects the Balassa-Samuelson hypothesis for 11 countries out of 20, new panel cointegration techniques permit the rescue of this hypothesis for Latin American countries, as well as for Central American and South American groups of countries considered separately.

Suggested Citation

  • Imed Drine & Christophe Rault, 2003. "Do panel data permit the rescue of the Balassa-Samuelson hypothesis for Latin American countries?," Applied Economics, Taylor & Francis Journals, vol. 35(3), pages 351-359.
  • Handle: RePEc:taf:applec:v:35:y:2003:i:3:p:351-359
    DOI: 10.1080/0003684022000015838
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    References listed on IDEAS

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    Cited by:

    1. repec:bla:rdevec:v:21:y:2017:i:4:p:1364-1379 is not listed on IDEAS
    2. Heather Gibson & Jim Malley, 2008. "The Contribution of Sectoral Productivity Differentials to Inflation in Greece," Open Economies Review, Springer, vol. 19(5), pages 629-650, November.
    3. Dierk Herzer & Michael Grimm, 2012. "Does foreign aid increase private investment? Evidence from panel cointegration," Applied Economics, Taylor & Francis Journals, vol. 44(20), pages 2537-2550, July.
    4. Imed Drine & Christophe Rault, 2005. "Déterminants de long terme des taux de change réels pour les pays en développement : une comparaison internationale," Revue d’économie du développement, De Boeck Université, vol. 13(1), pages 123-150.
    5. García Solanes, José & Torrejón-Flores, Fernando, 2009. "The Balassa-Samuelson Hypothesis in Developed Countries and Emerging Market Economies: Different Outcomes Explained," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 3, pages 1-24.
    6. José García Solanes & Fernando Torrejón Flores, "undated". "Testing the BalassA-Samuelson hypothesis in two different groups of countries: OECD and Latin America," Working Papers on International Economics and Finance 05-02, FEDEA.
    7. Alejandro C. García-Cintado & Diego Romero-Ávila & Carlos Usabiaga, 2016. "The economic integration of Spain: a change in the inflation pattern," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 25(1), pages 1-41, December.
    8. García-Solanes, José & Sancho-Portero, F. Israel & Torrejón-Flores, Fernando, 2008. "Beyond the Balassa-Samuelson effect in some new member states of the European Union," Economic Systems, Elsevier, vol. 32(1), pages 17-32, March.
    9. DRINE Imed & RAULT Christophe, "undated". "Does the Balassa-Samuelson Hypothesis Hold for Asian Countries? An Empirical Analysis using Panel Data Cointegration Tests," EcoMod2003 330700045, EcoMod.
    10. Imed Drine & Christophe Rault, 2003. "On the long-run determinants of real exchange rates for developing countries : Evidence from Africa, Latin America and Asia," William Davidson Institute Working Papers Series 2003-571, William Davidson Institute at the University of Michigan.
    11. Drine, I. & Rault, Ch., 2004. "Does the Balassa-Samuelson Hypothesis Hold for Asian Countries?. An Empirical Analysis using Panel Data and Cointegration Tests," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 4(4).
    12. Ventosa-Santaulària, Daniel, 2008. "Spurious Regression," MPRA Paper 59008, University Library of Munich, Germany.
    13. Njindan Iyke, Bernard, 2016. "The Penn Effect Revisited: New Evidence from Latin America," MPRA Paper 70593, University Library of Munich, Germany.
    14. Abdulnasser Hatemi-J & Manuchehr Irandoust, 2006. "The response of industry employment to exchange rate shocks: evidence from panel cointegration," Applied Economics, Taylor & Francis Journals, vol. 38(4), pages 415-421.

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