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Real Exchange Rates In Developing Countries: Are Balassa-Samuelson Effects Present?
Author: Mr. Mohsin S. Khan and Ehsan U. Choudhri
Series:
IMF Working Papers
Volume/Issue:
Volume 2004: Issue 188
Language:
English
Publication Date:
01 Oct 2004
DOI:
https://doi.org/10.5089/9781451859591.001
ISBN:
9781451859591
ISSN:
1018-5941
Pages:
22
Keywords:
WP
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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There is little empirical research on whether Balassa-Samuelson effects can explain the long-run behavior of real exchange rates in developing countries. This paper presents new evidence on this issue based on a panel data sample of 16 developing countries. The paper finds that the traded-nontraded productivity differential is a significant determinant of the relative price of nontraded goods, and the relative price in turn exerts a significant effect on the real exchange rate. The terms of trade also influence the real exchange rate. These results provide strong verification of Balassa-Samuelson effects for developing countries.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund