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Testing the Productivity Bias Hypothesis in Middle East Countries

Ferda Halicioglu and Natalya Ketenci

MPRA Paper from University Library of Munich, Germany

Abstract: The divergence of the purchasing power parity from the equilibrium exchange rate is attributed to various factors. Productivity differentials between the countries are said to be one of the main sources, which lead to productivity bias hypothesis. The hypothesis suggests that a relatively more productive country should experience a real appreciation of its currency. This research aims at testing the hypothesis in Middle East countries using the time series data over the period of 1970-2015 and by employing ARDL approach to cointegration. The econometric results support for the hypothesis is only in the cases of Bahrain, Kuwait, and Saudi Arabia. This research also provides policy recommendations on the basis of empirical results.

Keywords: Productivity bias hypothesis; cointegration; Middle East countries (search for similar items in EconPapers)
JEL-codes: C2 C21 C22 E31 F30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ara and nep-eff
Date: 2017
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