Balassa-Samuelson effect

The Balassa-Samuelson effect is either of two related things:

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• The observation that consumer price levels in wealthier countries are systematically higher than in poorer ones (the "Penn effect").
• An economic model predicting the above, based on the assumption that productivity or productivity growth-rates vary more by country in the traded goods' sectors than in other sectors (the Balassa-Samuelson hypothesis).

This article deals with point (2): Balassa and Samuelson's causal model. For a fuller description of the stylized fact it attempts to explain see: Penn effect.

Related Topics:
Balassa - Samuelson - Model - Penn effect

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Balassa-Samuelson effect: The theory ►