Balassa-Samuelson Meets South Eastern Europe, the CIS and Turkey: A Close Encounter of the Third Kind?

Abstract

This paper investigates the importance of the Balassa-Samuelson effect for two acceding countries (Bulgaria and Romania), two accession countries (Croatia and Turkey) and two CIS countries (Russia and Ukraine). The paper first studies the basic assumptions of the Balassa-Samuelson effect using yearly data, and then undertakes an econometric analysis of the assumptions on the basis of monthly data. The results suggest that for most of the countries, there is either amplification or attenuation, implying that any increase in the open sector's productivity feeds onto changes in the relative price of non-tradables either imperfectly or in an over-proportionate manner. With these results as a background, the size of the Balassa-Samuelson effect is derived. For this purpose, a number of different sectoral classification schemes are used to group sectors into open and closed sectors, which makes a difference for some of the countries. The Balassa-Samuelson effect is found to play only a limited role for inflation and real exchange rate determination, and it seems to be roughly in line with earlier findings for the eight new EU member states of Central and Eastern Europe.

The impact of real exchange rates on price competitiveness in Eastern European countries

“…Contradicting the previous works regarding the estimation of the BSH in Central and Eastern Europe by Mihaljek and Klau (2004), Egert (2002aEgert ( , 2002bEgert ( , 2003Egert ( , 2004Egert ( , 2005 and Candelon and Kool (2007). It is necessary to emphasize that works of Mihaljek and Klau and also Egert have got different results.…”

“…However, the author in his latest work stated on the importance to take into consideration country-specific factors, which can affect the overall result of the estimation. For example, in the 2005's work the RER behaviour was tested on the existence of Dutch disease (Egert, 2005). Even if at the end the result was not the same as predicted.…”

Catching-Up and Inflation in Transition Economies: The Balassa-Samuelson Effect Revisited

“…See Burgess et al (2003); Chukalev (2002); Égert (2005a) and (2005b); Égert et al (2003); Funda et al (2007); Mihaljek andKlau (2004) and(2007); Nenovsky and Dimitrova (2002); and Wagner and Hlouskova (2004).…”