Can Firms' Location Decisions Counteract the Balassa-Samuelson Effect ?

Isabelle Mejean

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Abstract: This paper examines the determinants of relative prices in a model combining a Harrod–Balassa–Samuelson (HBS) mechanism and an endogenous location of traded good producers. Besides the standard HBS effect, asymmetric productivity improvements in the traded good sector push new firms to enter the market. This benefits local consumers who save on trade costs and exerts an upward pressure on relative wages. As a consequence, relative prices in the traded good sector either increase or fall in general equilibrium. In a panel cointegration framework, the wage effect is shown to dominate. This means the HBS effect is strengthened by the relocation of traded good producers.

Keywords: Long-run real exchange rate; Balassa–Samuelson effect; New Trade theory; Panel cointegration (search for similar items in EconPapers)
Date: 2008-12
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Citations: View citations in EconPapers (1)

Published in Journal of International Economics, 2008, 76 (2), pp.139-154. ⟨10.1016/j.jinteco.2008.06.006⟩

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Related works:
Journal Article: Can firms' location decisions counteract the Balassa-Samuelson effect? (2008)
Working Paper: Can Firms’ Location Decisions Counteract the Balassa-Samuelson Effect? (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00363067

DOI: 10.1016/j.jinteco.2008.06.006

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