Why South Africa Is Cheap for the Rich and Expensive for the Poor: Reconsidering the Balassa-Samuelson Effect

Vincent Dadam, Marek Hanusch and Nicola Viegi

No 8942, Policy Research Working Paper Series from The World Bank

Abstract: This paper investigates cross-sectoral productivity differentials in South African industry and their distributional consequences. The analysis shows that typically, traded sectors have experienced low productivity growth over the past decade, while skill intensive service sectors have had significant productivity growth. This is the inverse of the traditional Balassa-Samuelson sectoral transformation hypothesis, where high wages in high-productivity traded sectors increase wages throughout the economy, thus increasing prices on non-traded goods and revaluing the country's real exchange rate. Instead, the higher productivity of non-traded sectors experienced in South Africa induces a devaluation of the real exchange rate and a contraction of the traded sectors. The results of the estimation show evidence of this"inverse"Balassa-Samuelson effect for agriculture and manufacturing and in particular mining. This"inverse"Balassa-Samuelson effect has important distributional consequences: the high-productivity sectors are associated with cheaper goods and services for wealthy households. This in turn burdens poor households, which are more dependent on traded goods, with higher prices, which are a consequence of low productivity and high markups.

Keywords: Construction Industry; Common Carriers Industry; Food&Beverage Industry; Plastics&Rubber Industry; Business Cycles and Stabilization Policies; General Manufacturing; Pulp&Paper Industry; Textiles; Apparel&Leather Industry; Mining&Extractive Industry (Non-Energy); International Trade and Trade Rules; Food Security (search for similar items in EconPapers)
Date: 2019-07-22
New Economics Papers: this item is included in nep-opm
References: Add references at CitEc
Citations:

Downloads: (external link)
http://documents.worldbank.org/curated/en/57568156 ... Samuelson-Effect.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:wbk:wbrwps:8942

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().