Productivity Differentials and The Real Exchange Rate: Empirical Evidence From India
This paper examines the long-run relationship between the real exchange rate and productivity differentials on traded and non-traded goods in India and Japan by using the data relating to the period from 1974 to 1998. The study uses the co-integration technique and finds that there is an evidence for the Balassa-Samuelson hypothesis, which stipulates that productivity differences in the traded and non-traded goods have a stable long-run equilibrium relationship with real exchange rate.
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