Journal Article

No. 2009-2 | February 17, 2009
The Balassa–Samuelson Hypothesis in Developed Countries and Emerging Market Economies: Different Outcomes Explained PDF Icon

Abstract

This paper studies the BalassaSamuelson effects in two areas with strong differences in economic development, sixteen OECD countries and sixteen Latin American economies. The USA is taken as a benchmark. Applying recent panel cointegration and bootstrapping techniques that solve for cross-sectional dependence and small panel size problems, we find some evidence for not rejecting the whole hypothesis in the LA area. In the context of OECD group, the second stage of the BS hypothesis, which relates relative sector prices with the real exchange rate, does not hold, probably because national markets remain to some extent segmented, as reflected in departures from PPP in the tradable sectors.

JEL Classification

C15 E31 F31

Citation

José García Solanes and Fernando Torrejón Flores (2009). The Balassa–Samuelson Hypothesis in Developed Countries and Emerging Market Economies: Different Outcomes Explained. Economics: The Open-Access, Open-Assessment E-Journal, 3 (2009-2): 1—24. http://dx.doi.org/10.5018/economics-ejournal.ja.2009-2

Assessment

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