Empirical Test of the Balassa–Samuelson Effect in Selected African Countries

Eita, Joel Hinaunye; Khumalo, Zitsile Zamantungwa; Choga, Ireen

doi:10.1007/978-3-030-56219-9_10

Cited by 3 publications

(4 citation statements)

References 30 publications

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“…The hypothesis suggests that rising productivity level leads to real exchange rate appreciation. Implying that a country can reap the benefits of currency appreciation via higher productivity (Eita et al, 2020;Ito et al, 1979). On account of several studies, including Eita et al (2020), the hypothesis is validated in the case of five African countries.…”

Section: Literature Overviewmentioning

confidence: 84%

“…Implying that a country can reap the benefits of currency appreciation via higher productivity (Eita et al, 2020;Ito et al, 1979). On account of several studies, including Eita et al (2020), the hypothesis is validated in the case of five African countries. However, some studies including Ito et al (1979) remarked that the validity of the hypothesis depends largely on the level of productivity in such economy.…”

Section: Literature Overviewmentioning

confidence: 84%

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Dynamic Effects of Exchange Rate Movements on Productivity Levels: New Evidence From Nigeria Based on NARDL

Uche

Nwamiri

2021

Journal of Development Policy and Practice

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The dynamic relationship between exchange rate movements (appreciation and depreciation) and macroeconomic fundamentals had preoccupied the minds of researchers across the globe. Consequently, extensive research works have been conducted to unravel the puzzle; however, the findings remain inconclusive. The inconclusiveness of these researches may not be unconnected with the choice of model, the omission of key variables and erroneous assumption of symmetric interrelationships of the variables. To mitigate such error and fill the observed research gaps, this study leveraged on the non-linear autoregressive distributed lag to trace the possible asymmetric pass-through of the exchange rate to output growth in Nigeria. The study made use of monthly time series for the period 2000M1–2018M12 for empirical estimations. The empirical findings reveal an asymmetric pass-through from exchange rate to productivity. Exchange rate depreciation led to output retardation in the short run, but neither appreciation nor depreciation of the exchange affected output in the long run. The findings highlight that exchange rate depreciation of the local currency does not improve the country’s productivity. This reveals a disconnection and misalignment between exchange and productivity in Nigeria. The findings call for proper alignment of the Naira exchange rate with the U.S. dollar for improved productivity in the economy.

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Section: Literature Overviewmentioning

confidence: 84%

Section: Literature Overviewmentioning

confidence: 84%

Dynamic Effects of Exchange Rate Movements on Productivity Levels: New Evidence From Nigeria Based on NARDL

Uche

Nwamiri

2021

Journal of Development Policy and Practice

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“…The empirical verification of the BS theory is done for Asian countries, but only in a handful of studies. There is a mix of evidence on the productivity-real exchange rate nexus [10] proposed under the BS theorem; therefore, no consensus on this matter has been reached so far. A substantial number of studies find only partial (or even no) empirical support in favor of the BS proposition for developing Asian countries [24,[29][30][31]33].…”

Section: Theoretical Background Of Ppp and Bs Effectsmentioning

confidence: 99%

“…The Balassa-Samuelson (BS) hypothesis proposes that growing and transition economies tend to bring a higher degree of technological advancements to them [10,11]. Nevertheless, such an advancement is biased towards their traded sector.…”

Section: Introductionmentioning

confidence: 99%

Another Prospective on Real Exchange Rate and the Traded Goods Prices: Revisiting Balassa–Samuelson Hypothesis

Ishaq

Ghouse

Bhatti³

2022

Sustainability

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This paper proposes a new variant and reinvestigates the validity of the Balassa–Samuelson (BS) hypothesis for nine East and South Asian countries under new specifications. The BS hypothesis is often criticized for one of its fundamental, but oversimplified assumptions related to Purchasing Power Parity (PPP) holding which can be confirmed for cronss-country tradables’ prices, implying nontraded-sector prices are solely responsible for inducing trend deviations in real exchange rate. The assumption, when empirically tested, does not always hold valid, revealing a price difference in tradables for Asian countries against the world (U.S.), a potential driver of their trend in real exchange rate deviations (appreciation). A new approach based on Fully Modified OLS (FMOLS) and Dynamic OLS (DOLS) is used to estimate the long-run BS coefficients, while the error correction mechanism is employed to estimate the short-run estimates. These results motivated us to allow for the inexistence of PPP for cross-country tradables; the standard form of the BS model is then tested in its relaxed form using time-series and panel data econometric tests. Despite a relaxing of the BS model in favor of tradables’ price deviation from PPP, the results are not sufficiently supportive of the BS hypothesis. These findings hold strong economic implications for Asia, suggesting that intercountry sectoral productivity bias of regional economies with the world does not necessarily exert substantial effects on their long-run real exchange rates. Additionally, contrary to the core belief of the BS model, intercountry tradables’ price differentials are found to substantially explain real exchange rate movements away from their long-run equilibrium.

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Threshold of currency devaluation and oil price movements that stimulates industrial production

Umoru

Effiong

Ugbaka

et al. 2023

CGOBR

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Even though oil prices are not subject to manipulations by individual countries, instability in the same generates shocks that other variables respond to, yet amid these shocks, more units of local currencies in developing countries are needed to acquire foreign inputs for production. Fluctuating oil prices consequently imply that high prices would increase the cost of production and ultimately reduce the purchasing power of industries. This study ascertains threshold effects of exchange rate devaluation and changes in oil prices on the industrial output of thirty developing countries using threshold and nonlinear autoregressive distributed lag (NARDL) regressions. Results revealed percentage rise above the devaluation threshold caused a fall in production by 4.36 percent. Oil prices within this devaluation region negatively affected output. Below and within the devaluation threshold of 0.692, the relationship patterns switch with oil price variability attracting positive and significant effects, while devaluation impacted industrial output positively with a substantial magnitude of 0.334. A higher devaluation was met with lower output in the industrial sector. In this higher region, increased oil prices weaken devaluation effects by 91.882. When a currency falls more than it is obtainable in the threshold (6.9 percent), oil prices cut output by a larger magnitude than it stimulated positively when the devaluation rate did not surpass the threshold value.

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Empirical Test of the Balassa–Samuelson Effect in Selected African Countries

Cited by 3 publications

References 30 publications

Dynamic Effects of Exchange Rate Movements on Productivity Levels: New Evidence From Nigeria Based on NARDL

Dynamic Effects of Exchange Rate Movements on Productivity Levels: New Evidence From Nigeria Based on NARDL

Another Prospective on Real Exchange Rate and the Traded Goods Prices: Revisiting Balassa–Samuelson Hypothesis

Threshold of currency devaluation and oil price movements that stimulates industrial production

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