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Labor Productivity and Real Exchange Rate; The Balassa-Samuelson Disconnect in the former Yugoslav Republic of Macedonia


  • Boileau Loko
  • Anita Tuladhar


This paper seeks to investigate the transmission mechanisms linking productivity to the real exchange rate in the former Yugoslav Republic of Macedonia. At first glance, the stylized facts-low labor productivity growth and a trend real depreciation-suggest that a Balassa- Samuelson effect is in play. We find that the relationship between the two is not a result of the traditional Balassa-Samuelson effect. Instead, the depreciation of the real exchange rate reflects mainly the behavior of prices in the tradable sector. We argue that the depreciating real exchange rate may reflect a prolonged transition associated with slow technological growth and the low quality of the country's tradable-goods basket.

Suggested Citation

  • Boileau Loko & Anita Tuladhar, 2005. "Labor Productivity and Real Exchange Rate; The Balassa-Samuelson Disconnect in the former Yugoslav Republic of Macedonia," IMF Working Papers 05/113, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:05/113

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    References listed on IDEAS

    1. Engel, Charles, 2000. "Long-run PPP may not hold after all," Journal of International Economics, Elsevier, vol. 51(2), pages 243-273, August.
    2. Piritta Sorsa & Dimitar Chobanov, 2004. "Competitiveness in Bulgaria; An Assessment of the Real Effective Exchange Rate," IMF Working Papers 04/37, International Monetary Fund.
    3. Canzoneri, Matthew B. & Cumby, Robert E. & Diba, Behzad, 1999. "Relative labor productivity and the real exchange rate in the long run: evidence for a panel of OECD countries," Journal of International Economics, Elsevier, vol. 47(2), pages 245-266, April.
    4. Ronald MacDonald & Luca Ricci, 2001. "PPP and the Balassa Samuelson Effect: the Role of the Distribution Sector," CESifo Working Paper Series 442, CESifo Group Munich.
    5. International Monetary Fund, 2002. "Lithuania; History and Future of the Currency Board Arrangement," IMF Working Papers 02/127, International Monetary Fund.
    6. Rahn, Jörg, 2003. "Bilateral equilibrium exchange rates of EU accession countries against the euro," BOFIT Discussion Papers 11/2003, Bank of Finland, Institute for Economies in Transition.
    7. International Monetary Fund, 2003. "Competitiveness in the Baltics in the Run-Up to EU Accession," IMF Staff Country Reports 03/114, International Monetary Fund.
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    Cited by:

    1. Bogoev, Jane & Bojceva Terzijan, Sultanija & Égert, Balázs & Petrovska, Magdalena, 2008. "Real Exchange Rate Dynamics in Macedonia: Old Wisdoms and New Insights," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 2, pages 1-19.
    2. Eva Gutierrez, 2006. "Export Performance and External Competitiveness in the former Yugoslav Republic of Macedonia," IMF Working Papers 06/261, International Monetary Fund.
    3. Eva Gutierrez, 2007. "Export Performance and External Competitiveness in the Former Yugoslav Republic of Macedonia," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 5(2), pages 203-224.
    4. Mirjana Miletić, 2012. "Estimating the Impact of the Balassa-Samuelson Effect in Central and Eastern European Countries: A Revised Analysis of Panel Data Cointegration Tests," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 59(4), pages 475-499, September.
    5. International Monetary Fund, 2008. "Algeria; Selected Issues," IMF Staff Country Reports 08/104, International Monetary Fund.


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