The Effects of Productivity Gains in Asian Emerging Economies: A Global Perspective

Taya Dumrongrittikul (), Heather Anderson and Farshid Vahid

No 23/14, Monash Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: This paper investigates international responses of key macroeconomic variables, particularly real exchange rates, to simultaneous shocks to productivity in the traded sector in eight Asian emerging and developing countries. We use panel estimation techniques to construct component submodels in a thirty country global vector autoregressive (GVAR) model. The GVAR approach can account for interaction among all countries and capture many potential international transmission channels. We identify the shocks by using sign restricted impulse responses. We find that increases in traded-sector productivity in Asian developing countries lead to a real appreciation of the domestic currencies, in line with the Balassa-Samuelson hypothesis. Inflation also increases in many Asian developing countries. After the shocks, nontraded sector productivity in the US and other developed countries increases, suggesting that there is a compositional shift in their production, away from the traded goods toward the nontraded goods. This allows productivity in the nontraded sector to increase. Further, the traded sector productivity shocks in Asia stimulate international trade in most countries.

Keywords: Asian developing countries; Exchange rate fundamentals; Global vector autoregression; Panel vector error correction model; Real exchange rates; Sign restricted impulse response. (search for similar items in EconPapers)
JEL-codes: C51 E52 F31 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-eff, nep-mac, nep-opm and nep-sea
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Citations: View citations in EconPapers (3)

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