PURCHASING POWER PARITY AND PRODUCTIVITY-BIAS HYPOTHESIS

Tri Widodo ()

Review of Economic and Business Studies, 2015, issue 16, 9-38

Abstract: This paper examines the purchasing power parity (PPP) theorem adjusted the “productivity-bias hypothesis” or the Balassa-Samuelson effect (Balassa, 1964; Samuelson, 1964) for eight East Asian countries including Japan, New Industrializing Economies (NIE-3: Singapore; Hong Kong, China; and Korea), the ASEAN-3 (Malaysia, Indonesia and the Philippines) and the People’s Republic of China (PRC). This paper applies three methods of analysis i.e. univariate time series, multivariate regression and Johansen multivariate cointegration. The three methods give the same conclusions. First, the PPP hypothesis does not hold in the case of the eight East Asian countries. Second, non-traded goods give significant contribution on the PPP deviation. It is confirmed by the existence of Balassa-Samuelson effect.

Keywords: Purchasing Power Parity (PPP); Balassa-Samuelson Effect; Cointegration (search for similar items in EconPapers)
JEL-codes: F31 F33 F36 F42 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

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