Can We Identify Balassa-Samuelson Effects with Measures of Product Variety?

Abstract

Provided in Cooperation with: Leibniz Institute for East and Southeast European Studies (IOS), Regensburg

The Penn Effect and Transition: The New EU Member States in International Perspective

“…However, comparative price levels have the enormous advantages of being more widely available and of being internationally comparable in level terms, which is why we use them in the rest of this paper. Frensch (2006), and García-Solanes et al (2008) so far been mostly confined to identifying Penn or BS effects within this country group's data, without putting them into an international perspective. Early results in this vein had been used as a basis for arguing that real appre-3 The IMF's International Financial Statistics (IFS) provide trade-weighted real effective exchange rate index series for a number of countries which cannot be compared in levels across countries in an economically meaningful way.…”

“…Early results in this vein had been used as a basis for arguing that real appre-3 The IMF's International Financial Statistics (IFS) provide trade-weighted real effective exchange rate index series for a number of countries which cannot be compared in levels across countries in an economically meaningful way. Frensch (2006) performs simple OLS regressions of yearly changes of available IFS real effective exchange rate data for the decade between 1990 and 2000 on yearly changes of PWT comparative prices. The estimated slope coefficient of 0.40 is significant at the 1 per cent level, the intercept is insignificant at the 10 per cent level (R 2 = 0.29; sample size = 864).…”

“…"(T)he inclusion of poor countries -particularly, African countries -tends to generate lower elasticities" (p. 139). Evidence in Frensch (2006) also suggests different strengths of the p-y relation-7 A "potentially important difference is that (compared to the 1993 and prior ICP rounds) stricter quality standards were used in the 2005 price surveys, to assure that the ICP was obtaining prices for internationally comparable commodities. This is important given that one expects that lower quality goods are consumed in poorer countries, creating a risk that (without strict standards in defining the products to be priced) one will underestimate the cost of living in poor countries by confusing quality differences with price differences" (Ravallion, 2010).…”

“…The argument in Frensch (2000Frensch ( , 2006, on which we build here, however, allows to separate tradability from reallocation in terms of changes in income shares spent on services and industrial goods. For further analysis, we return to the arbitrage view of the BS set-up, extending the framework to incorporate the effects of transition, defined as institutional reform driven resource reallocation, corporate restructuring, and liberalisation (Blanchard, 1997).…”

Are Wages Equal Across Sectors of Production? A Panel Data Analysis for Tradable and Non-Tradable Goods

“…All relevant studies mentioned in Section 1 more or less ad hoc choose one country as their benchmark (mostly the United States). In contrast Betts and Kehoe (2008) and Frensch and Schmillen (2010) do not use one benchmark economy but instead evaluate all bilateral country pairs in their respective samples. This study also relies on such a bilateral approach and is the first to use it for an evaluation of whether labor markets are homogenous across tradables and non-tradables, dramatically expanding the scope of the empirical investigation.…”