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The Balassa-Samuelson effect reversed: new evidence from OECD countries

Matthias Gubler () and Christoph Sax
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Christoph Sax: University of Basel

Swiss Journal of Economics and Statistics, 2019, vol. 155, issue 1, 1-21

Abstract: Abstract This paper reconsiders the Balassa-Samuelson (BS) hypothesis. We analyze an OECD country panel from 1970 to 2008 and compare three data sets on sectoral productivity, including newly constructed data on total factor productivity. Overall, our within- and between-dimension estimation results do not support the BS hypothesis. For the time since the mid-1980s, we find a robust negative relationship between productivity in the tradable sector and the real exchange rate, even after including the terms of trade to control for the effects of the home bias. Earlier, supportive findings may depend on the choice of the data set and the model specification.

Keywords: Real exchange rate; Balassa-Samuelson hypothesis; Panel data estimation; Terms of trade (search for similar items in EconPapers)
JEL-codes: F14 F31 F41 (search for similar items in EconPapers)
Date: 2019
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Related works:
Working Paper: The Balassa-Samuelson Effect Reversed: New Evidence from OECD Countries (2017) Downloads
Working Paper: The Balassa-Samuelson Effect Reversed: New Evidence from OECD Countries (2011) Downloads
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