Real Exchange Rates In Developing Countries: Are Balassa-Samuelson Effects Present?
October 1, 2004
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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.
Subject: Income, Labor productivity, Productivity, Real exchange rates, Terms of trade
Keywords: WP
Pages:
22
Volume:
2004
DOI:
Issue:
188
Series:
Working Paper No. 2004/188
Stock No:
WPIEA1882004
ISBN:
9781451859591
ISSN:
1018-5941
