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The Harrod-Balassa-Samuelson effect and endogenous extensive margins

  • Masashige Hamano


    (CREA-University of Luxembourg)

In the last few decades, the world economy has witnessed the expansion of trade especially in the number of exchanged varieties, the so-called "extensive margins". In a theoretical model where extensive margins in both traded and non-traded sectors are endogenously determined, it is shown that the HBS effect is amplified. Following an HBS productivity shock, when countries expand their extensive margins rather than scale of production, wages appreciate further. Therefore, the expansion in extensive margins leads to a stronger appreciation in the price of non-traded goods. A panel regression across OECD countries indicates consistency with the theoretical model.

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Paper provided by Center for Research in Economic Analysis, University of Luxembourg in its series CREA Discussion Paper Series with number 11-21.

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Date of creation: 2011
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Handle: RePEc:luc:wpaper:11-21
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