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Empirical test of the Balassa-Samuelson effect in selected African countries

Joel Eita (), Zitsile Zamantungwa Khumalo and Ireen Choga

MPRA Paper from University Library of Munich, Germany

Abstract: The purpose of this study investigates the validity of the Balassa-Samuelson effect in selected African countries. The kernel of the Balassa-Samuelson (BS) effect is the relationship between productivity and real exchange rate. The study therefore, estimates the equilibrium real exchange with total factor productivity as the main explanatory variable. The results revealed that Balassa-Samuelson effect holds in the selected African countries. The results show a positive relationship between real exchange rate and productivity. An increase in total factor productivity causes real exchange rate appreciation. An improvement in productivity can cause countries to experience an increase in prices of their products relative to trading partners. The study recommends that the selected African countries should pursue policies that maintain competitive real exchange rate.

Keywords: Real exchange rate; productivity; Balassa-Samuelson effect (search for similar items in EconPapers)
JEL-codes: C33 F00 F30 F39 (search for similar items in EconPapers)
Date: 2020-06-15
New Economics Papers: this item is included in nep-opm
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Working Paper: Empirical test of the Balassa-Samuelson Effect in Selected African Countries (2020) Downloads
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