The Role of Productivity in Economic Growth and Equilibrium

Ordean Olson

Asian Economic and Financial Review, 2013, vol. 3, issue 11, 1497-1527

Abstract: This study reexamines the evidence for the Balassa-Samuelson effect for the 1985-2007 period. Cointegrating relationships between the real exchange rate and productivity, real price of oil and government spending are estimated using the Johansen and Stock-Watson procedures. The findings show that for each percentage point in the US-Euro area productivity differential there is a three percentage point change in the real dollar/euro valuation. These findings are robust to the estimation methodology, the variables included in the regression, and the sample period. We suggest that economic disequilibrium can result in a decline in economic growth. This study will utilize von Neumann’s “A Model of General Economic Equilibrium” as an economic equilibrium standard.

Keywords: Foreign exchange rates; Labor productivity; American dollar. (search for similar items in EconPapers)
Date: 2013
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