Balassa-Samuelson effect

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

External links

• The classical explanation of the Balassa–Samuelson Effect in a mathematical form
• A widely cited examination of the relationship between distribution-sector productivity and the effect

(this is a good source of further links to the academic Balassa-Samuelson effect discussion.)

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• The European Central Bank defines the BS-effect from the inflation point of view, but says that even countries undergoing very rapid traded-goods productivity growth only experience inflationary pressure in the 1-2% range, and that sources of inflation other than Balassa-Samuelson have proven more significant for past Euro converge candidates like Greece.
• A discussion of the RER/productivity link as it effects Canada from the Bank of Canada
• An Empirical test of Balassa-Samuelson from 2000.

::"results do not show supportive evidence for the Balassa-Samuelson effect in the long run."

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• Useful summary of the different Exchange Rate Equilibrium models, including Balassa-Samuelson, as models for estimating a stable Koruna/Euro level
• The International Association for Research in Income and Wealth's Product Price Differences across Countries (2004) traces the history of the qualitative description given by the Balassa-Samuelson effect back to David Ricardo.
• Paper disputes the applicability of the law of one price to traded goods; so that the pure Balassa-Samuelson effect is an underestimate of likely RER changes - Cincibuch & Podpiera (2004) studied the RER appreciation to explain why it exceeds the Balassa-Samuelson prediction in the case of bilateral German-Central European country trade as the traded goods' productivity gap has declined. They argue that in practise, border barriers mean that tradables appreciate with productivity, and say:

::"Real appreciation is also observed in tradables and often accounts for the bulk in the overall appreciation".

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• A breakdown of the demand and supply side effects on the exchange rate from rising productivity by professor Ronald MacDonald of Strathclyde University and C. Wojcik of the Warsaw School of Economics.