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The Penn-Belassa-Samuelson Effect in Developing Countries: Price and Income Revisited

Listed author(s):
  • Fadi Hassan
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    It is conventional wisdom that richer countries have a higher price level than poorer countries. This paper provides evidence that the price-income relationship is non-linear and that it turns negative, or at best flat, in low income countries. The result is robust along both cross-section and time-series dimensions. Additional robustness checks show that biases in PPP estimation and measurement error in low-income countries do not drive the result.

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    File URL: http://cep.lse.ac.uk/pubs/download/dp1056.pdf
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    Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1056.

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    Date of creation: Jun 2011
    Handle: RePEc:cep:cepdps:dp1056
    Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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    1. Charles Engel, 1999. "Accounting for U.S. Real Exchange Rate Changes," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 507-538, June.
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    6. Restuccia, Diego & Yang, Dennis Tao & Zhu, Xiaodong, 2008. "Agriculture and aggregate productivity: A quantitative cross-country analysis," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 234-250, March.
    7. Erwin Diewert, 2010. "Understanding PPPs and PPP-Based National Accounts: Comment," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 36-45, October.
    8. Holger C. Wolf & Alberto Giovannini & Jose De Gregorio, 1994. "International Evidenceon Tradables and Nontradables Inflation," IMF Working Papers 94/33, International Monetary Fund.
    9. Angus Deaton, 2010. "Price indexes, inequality, and the measurement of world poverty," Working Papers 1207, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
    10. Diewert, Erwin, 2008. "New Methodology for Linking the Regions," Economics working papers erwin_diewert-2008-9, Vancouver School of Economics, revised 09 Sep 2008.
    11. Angus Deaton & Alan Heston, 2008. "Understanding PPPs and PPP-based national accounts," NBER Working Papers 14499, National Bureau of Economic Research, Inc.
    12. Gollin, Douglas & Parente, Stephen L. & Rogerson, Richard, 2007. "The food problem and the evolution of international income levels," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1230-1255, May.
    13. De Gregorio, Jose & Giovannini, Alberto & Wolf, Holger C., 1994. "International evidence on tradables and nontradables inflation," European Economic Review, Elsevier, vol. 38(6), pages 1225-1244, June.
    14. Martin Ravallion, 2010. "Understanding PPPs and PPP-Based National Accounts: Comment," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 46-52, October.
    15. Robert Summers & Alan Heston, 1991. "The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950–1988," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 327-368.
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