Productivity and Real Exchange Rates for India: Does Balassa-Samuelson Effect Explain?

Saurabh Ghosh, Siddhartha Nath and Sauhard Srivastava

MPRA Paper from University Library of Munich, Germany

Abstract: We attempt to explore the long-term equilibrium relationship between India’s real exchange rates and sectoral productivity trends using internationally comparable productivity databases such as KLEMS databases for India, China, Euro area, USA, UK and Japan. Our panel-ARDL results find support for an ‘extended’ Balassa-Samuelson hypothesis that allows for labour market frictions that does not allow for wage equalisation between traded and non-traded sectors within a country. These empirical findings are also robust to both labour productivity and total factor productivity as alternative measures of sectoral productivity. This mechanism continues to find some support when we separate out distribution sector, that comprises wholesale and retail trade in the domestic services sector. Our empirical evidence suggests that India’s real exchange rate is anchored to domestic fundamentals and is closely aligned to its fair value over a medium to long-time horizon.

Keywords: Balassa-Samuelson Model; Real exchange rate; Productivity; Trade; Panel Data (search for similar items in EconPapers)
JEL-codes: F11 F41 (search for similar items in EconPapers)
Date: 2021-12-12
New Economics Papers: this item is included in nep-eff, nep-int and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/110913/1/MPRA_paper_110913.pdf original version (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:pra:mprapa:110913

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().