THE VALIDITY OF BALASSA SAMUELSON HYPOTHESIS: DYNAMIC PANEL DATA METHODS TOWARD OECD COUNTRIES

Abstract

Balassa Samuelson Hypothesis, developed by Bela Balassa (1964) and Paul Samuelson (1964), points out effectiveness (productivity) difference in the sectors that are subject of trade or not as the reason for variations in exchange rate. According to this hypothesis, currency unit of the countries, where the difference of interest is high, will appreciate compared to the currency units of the other countries. Thus, Balassa Samuelson Hypothesis reveals the relationship between effectiveness, price, and real exchange rate.
In this study, the validity of Balassa Samuelson Hypothesis was tested in the scope of OECD countries. With moving from the dataset belonging to the period of 1971-2013, the results of carried out by using dynamic panel data methods point of that the hypothesis of interest are valid in Czech Republic, Finland, Germany, Hungary, Island, Japan, South Korea, Spain, United Kingdom, and Switzerland in the long period