Inverse Balassa–Samuelson effect in Mexico: the role of the oil sector

Arnoldo López-Marmolejo, Daniel Ventosa-Santaulària and Gerardo Sebastián Diaz Muro
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Arnoldo López-Marmolejo: Inter-American Development Bank (IDB)
Gerardo Sebastián Diaz Muro: Centro de Investigación Y Docencia Económicas (CIDE)
Authors registered in the RePEc Author Service: Arnoldo López Marmolejo

Empirical Economics, 2023, vol. 65, issue 5, No 10, 2273-2300

Abstract: Abstract In contrast to the oil boom in the USA, Mexico’s oil production has been declining continuously for the last 15 years. Lower output in the sector has affected various aspects of Mexico’s economy, one of which we found to be the real exchange rate: the decrease in productivity in the oil sector compared to the non-tradable sector, which in turn has caused a depreciation of the real exchange rate. This is an inverse Balassa–Samuelson effect, and the experience of Mexico serves as a wake-up call to countries whose economies are highly dependent on non-renewable commodities. To perform our analysis, we begin by calculating productivity by sector as total factor productivity. We then estimate the determinants of the real exchange rate by including the productivity of Mexico’s oil- and non-oil tradable sectors in order to disentangle their contributions.

Keywords: Real exchange rate; Balassa–Samuelson; Productivity; Oil (search for similar items in EconPapers)
JEL-codes: C13 C22 E24 O11 O19 O47 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s00181-023-02427-5

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