TESTING THE PRODUCTIVITY BIAS HYPOTHESIS FOR BRAZIL

Abstract

Purpose- Productivity Bias Hypothesis (Balassa-Samuelson hypothesis) implies that currency appreciates in a relatively more productive country. The focus of this study is to test productivity bias hypothesis for Brazil by employing time series data over the period 1980-2018. Methodology- Time series data is analyzed by Autoregressive Distributed Lag (ARDL) method of cointegration. Findings-Stationarity of the variables are supported by Augmented Dickey Fuller (ADF) and Phillips Perron (PP) tests. F bounds test and error correction model suggest that variables are cointegrated. Conclusion- Empirical analysis does not support the evidence in favor of productivity bias hypothesis for Brazil over the selected period.

Keywords

• Productivity bias hypothesis,Brazil

References

1. Asea, P. K., Mendoza, E. G. (1994). Balassa-Samuelson model: An overview. Review of International Economics, vol. 2, no. 3,p. 191–200.
2. Apergis, N. (2013), The domestic Balassa–Samuelson effect of inflation for the Greek economy. Applied Economics, vol. 45,no. 23, p. 3288-3294.
3. Bahmani-Oskooee, M.O., Nasir, A. B. M. (2001). Panel data and productivity bias hypothesis. Economic Development and Cultural Change,vol. 49, p. 393–402.
4. Bahmani-Oskooee, M., Nasir, A.B.M. (2005), Productivity bias hypothesis andthe purchasing power parity: A review article. Journal of Economic Surveys, vol.19, no.4, p. 671-696.
5. Balassa, B. (1964). The Purchasing-Power-Parity Doctrine: AReappraisal. Journal of Political Economy,vol. 72, no. 6, 584-596.
6. Bahmani-Oskooee, M. , Nasir, A.B.M. (2004), ARDL approach to test the productivity bias hypothesis. Review of Development Economics, vol. 8, no. 3, p. 483-488.
7. Bergstrand, J. H. (1991). Structural determinants of real exchange rates and national price levels: Some empirical evidence. American Economic Review, vol. 81, p. 325–334.
8. Bergstrand, J.H.(1992).Realexchange rates,national pricelevels, and the peach dividend. American Economic Review, vol. 82, p. 56–61.

9. Brown, R.L., Durbin, J., Evans, J.M. (1975), Techniques for testing the constancy of regression relations over time. Journal of the Royal Statistical Society, vol. 37, no. 1, p. 149-163.
10. Canzoneri, M. B., Cumby, R. E. , Diba, B. (1999). Relative labour productivity and the real exchange rate in the long run: evidence for a panel of OECD countries.Journal of International Economics vol. 47, p. 245–266.
11. Cardi, O., Restour, R. (2015), Imperfect mobility of labor across sectors: a reappraisal of the Balassa–Samuelson effect. Journal of International Economics, vol. 97, no. 2, p. 249-265.
12. Chowdhury, K. (2012), The real exchange rate and the Balassa–Samuelson hypothesis in SAARC countries: an appraisal. Journal of the Asia Pacific Economy, vol. 17, no. 1, p. 52-73.
13. Clague, C. K. (1986), Determinants of national price level: Some empirical results.The Review of Economics and Statistics vol.68, no. 2, p. 320–323.
14. De Gregorio, J., Giovannini, A., Wolf, H. C. (1994). International evidence on tradables and nontradables inflation. European Economic Review, vol. 38, p. 1225–1244.
15. Dickey, D. A., Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, vol. 74, no. 366a, p. 427–431.
16. Egert, B. (2002), Does the productivity-bias hypothesis hold in the transition countries: evidence from five CEE economies in the 1990s. Eastern European Economies, vol. 40, no. 2, p. 5-37.
17. Halıcıoglu, F., Ketenci N. (2018). Testing the Productivity Bias Hypothesis in Middle East Countries. Journal of Economic Studies, vol. 45, no.5, p.922-931.
18. Hsieh, D.A. (1982), The determination of the real exchange rate: the productivityapproach.Journal of International Economics, vol.12, p.355-362.
19. Irandoust, M. (2017), Symmetry, proportionality and productivity bias hypothesis: evidence from panel-VAR models. Economic Change and Restructuring, vol. 50, no. 1, p. 79-93.
20. Kravis, I. B., Lipsey, R. E. (1983). Toward and explanation of National price levels. Princeton Studies in International Finance. Princeton, NJ: Princeton University, International Finance Section.
21. Officer, L. H. (1976). The productivity bias in purchasing power parity: An econometric investigation. International Monetary Fund Staff Papers vol.23, p. 545–579.
22. Pesaran, H.M., Shin, Y. , Smith, J.R. (2001), Bounds testing approaches to the analysis of relationships. Journal of Applied Econometrics, vol. 16, no. 3, p. 289-326.
23. Phillips, P. C., Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, vol. 75, no. 2, p.335–346. https://doi.org/10.1093/biomet/75.2.335
24. Samuelson, P. (1964). Theoretical Notes on Trade Problems. Review of Economics and Statistics,vol.46, p. 145−154.
25. Strauss, J. (1999). Productivity differentials, the relative price of non – tradables and real exchange rates. Journal of International Money and Finance, vol. 18, p. 383–409.
26. Rogoff, K. (1992),Traded goods consumption smoothing and the random walk behavior of the real exchange rates. Bank of Japan Monetary and Economic Studies, vol. 10, no. 2, p. 1-29.