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

Alan Heston, Daniel A Nuxoll and Robert Summers

Review of International Economics, 1994, vol. 2, issue 3, 227-43

Abstract: The structure of prices of goods entering into international trade relative to those that do not plays a key role in the Balassa-Samuelson explanation of why countries' exchange rates differ systematically from their currencies' purchasing power. The B-S analysis leads to the proposition that the tradable-nontradable price difference is lower for rich countries than for poor. This paper examines the gap, using prices collected by the International Comparison Program. A variety of regressions were run to see if indeed the difference between tradable and nontradable price parities moved with income in the way B-S expected. They did. Copyright 1994 by Blackwell Publishing Ltd.

Date: 1994
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