Real Exchange Rates In Developing Countries : Are Balassa-Samuelson Effects Present?

Author/Editor:

Mohsin S. Khan ; Ehsan U. Choudhri

Publication Date:

October 1, 2004

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

There is little empirical research on whether Balassa-Samuelson effects can explain the long-run behavior of real exchange rates in developing countries. This paper presents new evidence on this issue based on a panel data sample of 16 developing countries. The paper finds that the traded-nontraded productivity differential is a significant determinant of the relative price of nontraded goods, and the relative price in turn exerts a significant effect on the real exchange rate. The terms of trade also influence the real exchange rate. These results provide strong verification of Balassa-Samuelson effects for developing countries.

Series:

Working Paper No. 04/188

Subject:

English

Publication Date:

October 1, 2004

ISBN/ISSN:

9781451859591/1018-5941

Stock No:

WPIEA1882004

Format:

Paper

Pages:

22

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