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The Balassa-Samuelson Effect in Central and Eastern Europe: Myth or Reality?

Referierte Aufsätze Web of Science

Balázs Égert, Imed Drine, Kirsten Lommatzsch, Christophe Rault

In: Journal of Comparative Economics 31 (2003), S. 552-572


This paper studies the Balassa-Samuelson effect in nine Central and East European countries. Using panel cointegration techniques, we find that the productivity growth differential in the open sector leads to inflation in non-tradable goods. Because of the low share of non-tradables and the high share of food items in addition to regulated prices, the consumer price index is misleading when analyzing the Balassa-Samuelson effect. Consequently, the appreciation of the real exchange rate, which has been established as a stylized fact over the last decade, is caused only partly by the Balassa-Samuelson effect. We identify a trend increase in the prices of tradable goods as a contributing explanation.

JEL-Classification: E31;F31;C15
Keywords: Balassa¿Samuelson effect, Panel cointegration, Transition economies, EMU