The Balassa–Samuelson hypothesis in the developed and developing countries revisited

Weiguo Wang, Jing Xue and Chonghua Du

Economics Letters, 2016, vol. 146, issue C, 33-38

Abstract: This paper aims at examining the Balassa–Samuelson (BS) hypothesis in 20 developed and 20 developing countries, respectively. Given the cross-sectional dependence and structural breaks, we develop a new panel cointegration technique which allows for multiple heterogeneous unknown breaks and non-stationary factors. The empirical results show that the BS hypothesis holds in the developed countries, implying that higher productivity growth leads to a real appreciation, but they are cointegrated up to a number of cross-sectional unobserved stochastic trends as factors are non-stationary. However, we find little evidence to support the BS hypothesis in the developing countries and a further research is needed for the reason.

Keywords: Balassa–Samuelson hypothesis; Real exchange rates; Productivity; Panel cointegration; Cross-sectional dependence; Structural breaks (search for similar items in EconPapers)
JEL-codes: C2 C5 E4 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:146:y:2016:i:c:p:33-38

DOI: 10.1016/j.econlet.2016.07.020

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