Balassa-Samuelson effect

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

Trade theory implications

The supply-side economists (and others) have argued that raising International competitiveness through policies that promote traded goods sectors' productivity (at the expense of other sectors) will increase a nation's GDP, and increase its standard of living, when compared with treating the sectors equally. The Balassa-Samuelson effect might be one reason to oppose this trade theory, because it predicts that: a GDP gain in traded goods does not lead to as much of an improvement in the living standard as an equal GDP increase in the non-traded sector. (This is due to the effect's prediction that the CPI will increase by more in the former case.)

Related Topics:
Supply-side economists - Traded goods - GDP - Standard of living - Trade theory

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