Productivity Bias Hypothesis: Evidence from South Asia
12 Pages Posted: 24 Apr 2015
Date Written: April 24, 2015
Abstract
Most existing studies have attempted to test the productivity bias hypothesis by making use of the cross-section data. This paper utilizes country level time series data from Penn World Tables to examine the productivity bias hypothesis for five South Asian economies (namely, Bangladesh, India, Nepal, Pakistan and Sri Lanka). We make use of Johansen’s cointegration approach and vector error correction modelling. The empirical analysis presented in this paper shows that purchasing power parity theory holds for all countries considered. However, the productivity bias hypothesis appears to hold only in the case of Bangladesh and Nepal.
Keywords: Purchasing power parity, Exchange rate determination, Productivity bias hypothesis; South Asia
JEL Classification: E44, F36, F47
Suggested Citation: Suggested Citation