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A Dynamic Theory of The Balassa-Samuelson Effect

Author

Listed:
  • Harutaka Takahashi

    (Kobe University, Meiji Gakuin University)

  • Alain Venditti

    (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract

The Balassa-Samuelson effect is still an important phenomenon in the theory of economic development, as Balassa states, "As economic development is accompanied by greater inter-country differences in the productivity of tradable goods, differences in wages and service prices increase, and correspondingly so do differences in purchasing power parity and exchange rates." To the best of our knowledge, the Balassa-Samuelson effect has not been formally examined in the framework of optimal growth theory. By embedding the Balassa-Samuelson's original model in an optimal growth model setting, we investigate the validity of the Balassa-Samuelson effect in such a case and show that the Balassa-Samuelson effect follows from one of the properties of the optimal steady state.

Suggested Citation

  • Harutaka Takahashi & Alain Venditti, 2023. "A Dynamic Theory of The Balassa-Samuelson Effect," Working Papers halshs-04320470, HAL.
    • Handle: RePEc:hal:wpaper:halshs-04320470
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-04320470
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