Balassa-Samuelson, Product Differentiation and Transition

Richard Frensch ()

No 266, Working Papers from Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies)

Abstract: Recent panel studies have found relatively high estimates for the elasticity of real exchange rates with respect to productivity measures in transition economies within Balassa-Samuelson frameworks. This contrasts with other findings reporting cross-section price-income elasticity estimates to depend positively on average income in the sample. This paper aims to reconcile both results by putting real exchange rate developments of transition economies in an international perspective. We illustrate the special status of these economies in a simple world-wide Balassa-Samuelson-type price-income benchmark relationship between a real exchange rate measure (Penn World Table comparative prices, i.e., exchange rate gaps) and PPP-adjusted per capita income. A pronounced undervaluation at the start of transition, followed by a strong appreciation results in normalisation towards the benchmark for Central and East European economies (CEEC) but not for the CIS. We then make an attempt at extending the simple price-income relationship to incorporate other real factors as well as reforms related to price deregulation. Our results imply that, when accounting for demand shifts, external liberalisation, and especially for reform effort, the price-income-elasticity for CEEC economies was not different from that of non-transition economies during the nineties.

Keywords: Balassa-Samuelson; transition (search for similar items in EconPapers)
JEL-codes: F40 F43 (search for similar items in EconPapers)
Pages: 55
Date: 2006-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.oei-dokumente.de/publikationen/wp/wp-266.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ost:wpaper:266

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers from Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies) Contact information at EDIRC.
Bibliographic data for series maintained by Kseniia Gatskova ( this e-mail address is bad, please contact ).