An empirical test of the Balassa-Samuelson hypothesis: evidence from eight middle-income countries in Africa

Bernard Njindan Iyke, Nicholas M. Odhiambo

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Abstract

The paper tests the validity of the Balassa-Samuelson hypothesis (BSH) using the within-effects and the dynamic panel generalised methods of moment (GMM) techniques for a panel of eight middle-income African countries over the period 1960–2009. We selected these countries because they exhibited a mixture of relative productivity growth and real exchange rate misalignment that fits the characterization of the BSH well. The results strongly support the BSH for this group of countries. The results are valid even after we controlled for potentially omitted variables and endogeneity. The implication is that as these countries become more productive, their currencies appreciate in real terms.

Original languageEnglish
Pages (from-to)297-304
Number of pages8
JournalEconomic Systems
Volume41
Issue number2
DOIs
Publication statusPublished - Jun 2017
Externally publishedYes

Keywords

  • Balassa-Samuelson hypothesis
  • Purchasing power parity
  • Real exchange rate
  • Relative productivity

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