The Differential‐Productivity Hypothesis and Purchasing‐Power Parties: Some New Evidence*

Heston, Alan; Nuxoll, Daniel A.; Summers, Robert

doi:10.1111/j.1467-9396.1994.tb00042.x

Cited by 52 publications

(28 citation statements)

References 8 publications

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“…Heston, Nuxoll and Summers (1994) found that the difference between tradable and non-tradable prices moved with the income levels of OECD countries, which is consistent with the results of Canzoneri, Cumby and Diba (1999). According to Tille (2001), productivity developments accounted for 2/3 of the US dollar's appreciations against the Euro and 3/4 of its appreciation against the Japanese yen in the nineties.…”

Section: Discussionsupporting

confidence: 90%

The Balassa-Samuelson Hypothesis in Developed Countries and Emerging Market Economies: Different Outcomes Explained

García-Solanes

Torrejón-Flores

2008

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Abstract:This paper studies the Balassa-Samuelson hypothesis in two areas with strong differences in economic development, sixteen OECD countries and sixteen Latin American economies. Applying panel cointegration and bootstrapping techniques that solve for cross-sectional dependence problems in the data, we find that the second stage of the hypothesis, which relates relative sector prices with the real exchange rate, only holds in the Latin American area. The failure of the latter in the OECD countries as a whole is reflected in departures from PPP in the tradable sectors, and is probably due to segmentation between national tradable markets.Paper submitted to the special issue "Using Econometrics for Assessing Economic Models" edited by Katarina Juselius. JEL: E31, F31, C15 SUMMARYIn this paper we test the BS effect by looking at two areas differing substantially in development and

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Section: Discussionsupporting

confidence: 90%

The Balassa-Samuelson Hypothesis in Developed Countries and Emerging Market Economies: Different Outcomes Explained

García-Solanes

Torrejón-Flores

2008

SSRN Journal

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“…35 Some other recent empirical evidence exists, however, in favor of the HarrodBalassa-Samuelson hypothesis. Heston, Nuxoll, and Summers (1994) examine the tradable-nontradable price differential across countries on the basis of the PURCHASING POWER PARITY AND THE REAL EXCHANGE RATE 91 33 An alternative underlying theory that also leads to the Harrod-Balassa-Samuelson hypothesis is due to Kravis and Lipsey (1983) and Bhagwati (1984), who build an imperfect capital mobility model and hence use the assumption that capital-labor ratios are higher in fast-growing countries relative to slowgrowing countries. For a comprehensive overview of the theoretical contributions and the empirical evidence on the Harrod-Balassa-Samuelson effect, see Asea and Corden (1994).…”

Section: = T N Purchasing Power Parity and The Real Exchange Ratementioning

confidence: 99%

Purchasing power parity and the real exchange rate

Sarno¹,

Taylor²,

Frankel³

2003

The Economics of Exchange Rates

116

136

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We assess the progress made by the profession in understanding realT he purchasing power parity (PPP) exchange rate is the exchange rate between two currencies that would equate the two relevant national price levels if expressed in a common currency at that rate, so that the purchasing power of a unit of one currency would be the same in both economies. This concept of PPP is often termed absolute PPP. Relative PPP is said to hold when the rate of depreciation of one currency relative to another matches the difference in aggregate price inflation between the two countries concerned. If the nominal exchange rate is defined simply as the price of one currency in terms of another, then the real exchange rate is the nominal exchange rate adjusted for relative national price level differences. When PPP holds, the real exchange rate is a constant, so that

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“…Therefore the relative slower rate of growth in the non-traded goods sector results in higher relative nontraded goods' prices 2 . One prediction of this model is that the tradable-nontradable price difference is lower for rich countries than for poor countries (see Heston et al, 1994). Another consequence is that if traded goods' productivity relative to non-traded goods' productivity is growing faster at home than abroad, then the home country should experience an appreciation of the real exchange rate 3 .…”

Section: Introductionmentioning

confidence: 99%

Testing the Balassa-Samuelson Effect: Implications for Growth and the PPP

Faria

León‐Ledesma

2000

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractThe derivation of the Balassa-Samuelson effect allows for different empirical specifications that may have important economic implications. Problems related to spurious regression could arise from the mixed order of integration of the series used and from the lack of a long run stable relationship among the variables of the model. This paper addresses these problems by using the bounds testing approach developed by Pesaran, Shin and Smith (1999). Our empirical results do not show supportive evidence for the Balassa-Samuelson effect in the long run. This seems to suggest that PPP holds. However, one of the implications of PPP is that the real exchange rate does not have any real impact on the economy. Further empirical analysis rejects this implication. In fact, the real exchange rate seems to have a long run impact on relative growth rates. JEL Classification: F11, F31, C22

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The Differential‐Productivity Hypothesis and Purchasing‐Power Parties: Some New Evidence*

Cited by 52 publications

References 8 publications

The Balassa-Samuelson Hypothesis in Developed Countries and Emerging Market Economies: Different Outcomes Explained

The Balassa-Samuelson Hypothesis in Developed Countries and Emerging Market Economies: Different Outcomes Explained

Purchasing power parity and the real exchange rate

Testing the Balassa-Samuelson Effect: Implications for Growth and the PPP

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