Does the Balassa-Samuelson Hypothesis Hold for Asian Countries? An Empirical Analysis Using Panel Data and Cointegration Tests

24 Pages Posted: 28 Aug 2008

See all articles by Imed Drine

Imed Drine

Université Paris I Panthéon-Sorbonne - Equipe Universitaire de Recherche en Economie Quantitative (EUREQUA)

Christophe Rault

IZA Institute of Labor Economics; University of Orleans; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: August, 17 2008

Abstract

This paper tests empirically the Balassa-Samuelson (BS) hypothesis using annual data for 6 Asian countries. We apply new panel data cointegration techniques recently developed by Pedroni (2000, 2004) and we compare the results with those obtained with conventional Johansen (1995)'s time series cointegration tests. Whereas, standard time series approach turns out to be able to put in evidence a significant long-run relationship between real exchange rate and productivity differential; this relationship is strongly rejected for all countries using recent advances in the econometrics of non-stationary dynamic panel methods. Closer exminations of the three key components of the BS hypothesis enable us to identify clearly the causes of this empirical failure. We find that the absence of a positive long-run relationship between productivity differential and relative prices is the reason for this rejection.

Keywords: Real Exchange Rate, Balassa-Samuelson hypothesis, Asian countries, Panel unit-root and cointegration tests

JEL Classification: C15, E31, F0, F31

Suggested Citation

Drine, Imed and Rault, Christophe and Rault, Christophe, Does the Balassa-Samuelson Hypothesis Hold for Asian Countries? An Empirical Analysis Using Panel Data and Cointegration Tests (August, 17 2008). Applied Econometrics and International Development, Vol. 4, No. 4, 2004, Available at SSRN: https://ssrn.com/abstract=1232370

Imed Drine (Contact Author)

Université Paris I Panthéon-Sorbonne - Equipe Universitaire de Recherche en Economie Quantitative (EUREQUA) ( email )

106-112 Boulevard de l'Hopital
Paris Cedex 13, 75647
France

Christophe Rault

University of Orleans ( email )

Rue de Blois
BP 6739
LEO, Orleans, Orleans cedex 2 45067
France

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
96
Abstract Views
998
Rank
492,631
PlumX Metrics