Does the Balassa-Samuelson hypothesis still work? Evidence from OECD countries Online publication date: Tue, 17-Jun-2014
by Cem Tintin
International Journal of Sustainable Economy (IJSE), Vol. 6, No. 1, 2014
Abstract: This study tests the Balassa-Samuelson (BS) hypothesis, which explains the real exchange rate with relative productivity differences, for ten OECD countries between 1975 and 2007 by using the Johansen cointegration approach. The study further tests the effect of the terms of trade variable by adding it into a standard BS model. The cointegration analysis confirms the existence of cointegration among real effective exchange rate, relative productivity and terms of trade. The study's major findings suggest that the BS hypothesis still works well in OECD countries while explaining the long-run movements of the real exchange rates that it holds for eight out of ten OECD countries in the extended BS model. The results also exert the existence of significant cross-country differences about the size the BS effects. These results are important for calibrating the real exchange models, which is crucial for sustainable allocation of resources in international trade and finance.
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Sustainable Economy (IJSE):
Login with your Inderscience username and password:
Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.
If you still need assistance, please email subs@inderscience.com
Our Blog 
Follow us on Twitter 
Visit us on Facebook