Economic Growth and Real Exchange Rate: An Overview of the Balassa-Samuelson Hypothesis in Asia

37 Pages Posted: 26 Jul 2000

See all articles by Takatoshi Ito

Takatoshi Ito

University of Tokyo - Faculty of Economics; National Bureau of Economic Research (NBER); Ministry of Finance, Tokyo

Peter Isard

International Monetary Fund (IMF) - Research Department

Steven Symansky

International Monetary Fund (IMF) - Fiscal Affairs Department

Date Written: March 1997

Abstract

The paper tests the Balassa-Samuelson hypothesis (rapid economic growth is accompanied by real exchange rate appreciation because of differential productivity growth between tradable and nontradable sectors) using data of the APEC economies. Japan, Korea, Taiwan and, to a lesser extent, Hong Kong and Singapore, were proved to follow the Balassa-Samuelson path. These countries follow a similar industrialization pattern, increasing the weight of high value-added exports. Although Hong Kong and Singapore grew fast, their real exchange rates appreciated only moderately. High productivity growth in service sectors might have been the reason for this. Other fast-growing ASEAN countries, such as Thailand, Indonesia and Malaysia did not experience real appreciation. Closer examinations of various components of the Balassa-Samuelson hypothesis revealed that key assumptions are not uniformly supported: There is no uniform pattern for the movement of nontradable prices relative to tradable prices; and tradable prices (measured by common currency) do not show the international arbitrage.

Suggested Citation

Ito, Takatoshi and Isard, Peter and Symansky, Steven, Economic Growth and Real Exchange Rate: An Overview of the Balassa-Samuelson Hypothesis in Asia (March 1997). NBER Working Paper No. w5979, Available at SSRN: https://ssrn.com/abstract=225758

Takatoshi Ito (Contact Author)

University of Tokyo - Faculty of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Ministry of Finance, Tokyo ( email )

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Peter Isard

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Steven Symansky

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

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