The Balassa-Samuelson Effect in Central and Eastern Europe: Myth or Reality?

Balázs Égert, Imed Drine (), Kirsten Lommatzsch () and Christophe Rault

No 05-15, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne

Abstract: This paper studies the Balassa-Samuelson effect in nine Central and East European countries. Using panel cointegration techniques, we find that productivity growth in the open sector leads to inflation in non-tradable goods. Because of the low share of non-tradables and the high share of food items in addition to regulated prices, the consumer price index is misleading when analyzing the Balassa-Samuelson effect. Consequently, the appreciation of the real exchange rate, which has been established as a stylized fact over the last decade, is caused only partly by the Balassa-Samuelson effect. We identify a trend increase in the prices of tradable goods as a contributing explanation.

Keywords: Balassa-Samuelson effect; Panel cointegration; Transition economies; EMU (search for similar items in EconPapers)
JEL-codes: C15 E31 F31 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: The Balassa-Samuelson effect in Central and Eastern Europe: myth or reality? (2003)
Working Paper: The Balassa-Samuelson effect in Central and Eastern Europe: Myth or reality? (2003)
Working Paper: The Balassa-Samuelson effect in Central and Eastern Europe: Myth or reality? (2002)
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