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Testing the BalassA-Samuelson hypothesis in two different groups of countries: OECD and Latin America

  • José García Solanes

    (Universidad de Murcia and CentrA)

  • Fernando Torrejón Flores

    (Universidad de Murcia)

This paper studies the Balassa-Samuelson hypothesis (BSH) in the context of two areas with strong differences in economic development, twelve OECD countries and twelve Latin American economies, taking the USA as the benchmark. Applying panel cointegration techniques, we find that while the first stage of the hypothesis, which links productivities and prices, is satisfied in each group of countries, the second stage, which relates relative sector prices with the real exchange rate, only holds in the Latin American area. The failure of the latter in the OECD countries as a whole is reflected in departures from PPP in the tradable sectors.

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Paper provided by Asociación Española de Economía y Finanzas Internacionales in its series Working Papers with number 05-02.

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Length: 32 pages
Date of creation: Jan 2005
Date of revision:
Handle: RePEc:aee:wpaper:0502
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  1. International Monetary Fund, 2001. "Interpreting Real Exchange Rate Movements in Transition Countries," IMF Working Papers 01/56, International Monetary Fund.
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  8. Pedroni, Peter, 1999. " Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 653-70, Special I.
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  11. Takatoshi Ito & Peter Isard & Steven Symansky, 1999. "Economic Growth and Real Exchange Rate: An Overview of the Balassa-Samuelson Hypothesis in Asia," NBER Chapters, in: Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and Policy Issues (NBER-EASE volume 7), pages 109-132 National Bureau of Economic Research, Inc.
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  17. Hsiu-Ling Wu, 1996. "Testing for the Fundamental Determinants of the Long-Run Real Exchange Rate: The Case of Taiwan," NBER Working Papers 5787, National Bureau of Economic Research, Inc.
  18. Balázs Egert, 2002. "Investigating the Balassa-Samuelson hypothesis in the transition: Do we understand what we see? A panel study," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 10(2), pages 273-309, July.
  19. R. Golinelli & R. Orsi, 2001. "Hungary and Poland," Working Papers 424, Dipartimento Scienze Economiche, Universita' di Bologna.
  20. Strauss, Jack, 1999. "Productivity differentials, the relative price of non-tradables and real exchange rates," Journal of International Money and Finance, Elsevier, vol. 18(3), pages 383-409.
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