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Time‐Series Support for Balassa's Productivity‐Bias Hypothesis: Evidence from Korea
Author(s) -
BahmaniOskooee Mohsen,
Rhee HyunJae
Publication year - 1996
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.1996.tb00110.x
Subject(s) - purchasing power parity , cointegration , economics , johansen test , productivity , econometrics , relative purchasing power parity , exchange rate , time series , macroeconomics , error correction model , statistics , mathematics
In this paper we use the Johansen and Juselius cointegration technique and quarterly data over the period 1979–1993 to test the productivity‐bias hypothesis between Korea and four of its major trading partners (Germany, Japan, the United Kingdom, and the United States). The results show that in all four cases the deviation of purchasing‐power parity (PPP) from the equilibrium exchange rate has a long‐run relationship with the productivity ratios, supporting the notion that as Korea becomes relatively more productive, the Korean won appreciates in real terms.