Time-Series Support for Balassa's Productivity-Bias Hypothesis: Evidence from Korea

Mohsen Bahmani-Oskooee and Hyun-Jae Rhee

Review of International Economics, 1996, vol. 4, issue 3, 364-70

Abstract: In this paper we use the Johansen and Juselius cointegration technique and quarterly data over the period 1979-1993 to test the productivity-bias hypothesis between Korea and four of its major trading partners (Germany, Japan, the United Kingdom, and the United States). The results show that in all four cases the deviation of purchasing-power parity (PPP) from the equilibrium exchange rate has a long-run relationship with the productivity ratios, supporting the notion that as Korea becomes relatively more productive, the Korean won appreciates in real terms. Copyright 1996 by Blackwell Publishing Ltd.

Date: 1996
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