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BY 4.0 license Open Access Published by De Gruyter Open Access February 17, 2009

The Balassa–Samuelson Hypothesis in Developed Countries and Emerging Market Economies: Different Outcomes Explained

José García-Solanes EMAIL logo and Fernando Torrejón-Flores
From the journal Economics

Abstract

This paper studies the Balassa–Samuelson effects in two areas with strong differences in economic development, sixteen OECD countries and sixteen Latin American economies. The USA is taken as a benchmark. Applying recent panel cointegration and bootstrapping techniques that solve for cross-sectional dependence and small panel size problems, we find some evidence for not rejecting the whole hypothesis in the LA area. In the context of OECD group, the second stage of the BS hypothesis, which relates relative sector prices with the real exchange rate, does not hold, probably because national markets remain to some extent segmented, as reflected in departures from PPP in the tradable sectors.

JEL Classification: E31; F31; C15

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Published Online: 2009-02-17
Published in Print: 2009-12-01

© 2009 José García-Solanes et al., published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

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