Title: The Balassa-Samuelson effect in an imperfectly competitive economy: empirical evidence for G7 countries
Abstract: In this paper we consider the role of imperfect competition to explain the relative price of non-traded to traded goods within the Balassa-Samuelson framework. Under imperfect competition in the two sectors, relative prices depend on both productivity and markups. We test this implication using a panel of sectors for the seven major OECD countries. The empirical evidence suggests that relative price movements are well explained by relative productivity and variations in mark ups. Unlike the original Balassa-Samuelson model, aggregate demand could affect the real exchange rate by changing the mark ups. Empirical results show that aggregate demand fluctuations lead to changes on the mark ups.
Publication Year: 2004
Publication Date: 2004-01-01
Language: en
Type: article
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