The Penn-Belassa-Samuelson effect in developing countries: price and income revisited

Fadi Hassan

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: It is conventional wisdom that richer countries have a higher price level than poorer countries. This paper provides evidence that the price-income relationship is non-linear and that it turns negative, or at best flat, in low income countries. The result is robust along both cross-section and time-series dimensions. Additional robustness checks show that biases in PPP estimation and measurement error in low-income countries do not drive the result.

Keywords: Balassa-Samuelson; Penn effect; developing countries; non-parametric estimation; purchasing power parity; real exchange rate (search for similar items in EconPapers)
JEL-codes: E31 F4 O1 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2011-06-01
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:121930

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