The real exchange rate and productivity differentials: a panel cointegration approach

Vishal Jaunky

Journal of Economic Methodology, 2008, vol. 15, issue 4, pages 313-318

Abstract: Balassa (1964) and Samuelson (1964) have expressed the view that economic development is normally accompanied by a real exchange rate appreciation. The aim of the study is twofold: first, we investigate whether the Balassa-Samuelson (BS) hypothesis holds, and second we appraise the performance of the commonly used productivity differentials proxy. Results from the Prais and Winsten (1954), Im, Pesaran and Shin (2003) and McCoskey and Kao (2001) panel data techniques suggest that it is legitimate to consider the BS hypothesis at different stages of economic development. Additionally, the proxy works quite well.

Date: 2008

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