Balassa–Samuelson in the Long Run: Qualitative Success, Quantitative Limits

Shinnosuke Kikuchi

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: I qualitatively and quantitatively revisit the Balassa–Samuelson (BS) mechanism in the long run. Traditional panel regression specifications without time fixed effects are fragile, but adding time fixed effects yields a stable, positive BS elasticity across samples and frequencies—evidence that the data support BS qualitatively on average across countries. Quantitatively, however, a standard multi-country trade model fed only by observed sectoral productivity cannot match country paths and delivers too small magnitudes. These failures persist with costly trade, multi-country, multi-sector settings, input–output linkages, and time-varying trade costs.

Pages: 49 pages
Date: 2026-02
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Persistent link: https://EconPapers.repec.org/RePEc:eti:dpaper:26012

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