Research Information System
Sosyal Ekonomik Araştırmalar Dergisi, vol.20, no.40, pp.165-173, 2020 (Peer-Reviewed Journal)
One of the reasons of deviation from Purchasing Power Parity is the
Productivity Bias Hypothesis (PBH) that is also known as
Balassa-Samuelson Hypothesis which is based on Balassa (1964) and
Samuelson (1964). Productivity Bias Hypothesis implies that productivity
causes a real appreciation in currency of a relatively more productive
country. Mechanism can be briefly summarized as follows: Productivity
increase in tradable sector increases wages in this sector and due to
labor mobility across sectors wages in non-tradable sectors rise. Then,
prices increase and finally exchange rates rise. Due to relatively high
growth rates and productivity increases emerging countries can be good
samples to investigate the hypothesis. The purpose of this study is to
investigate the validity of Productivity Bias Hypothesis for Next 11
countries (Bangladesh Egypt, Indonesia, Iran, South Korea, Mexico,
Nigeria, Pakistan, Phillipines, Turkey and Vietnam). Autoregressive
Distributed Lag method (ARDL) of cointegration is used to analyze time
series data. Empirical results suggest that the hypothesis is supported
in Bangladesh, Indonesia, Turkey and Vietnam for the considered period
of time. The policy implications are provided as well.