Template-Type: ReDIF-Paper 1.0
Author-Name: Paul Bergin
Author-Name-First: Paul
Author-Name-Last: Bergin
Author-Name: Alan M. Taylor
Author-Name-First: Alan M.
Author-Name-Last: Taylor
Author-Name: Reuven Glick
Author-Name-First: Reuven
Author-Name-Last: Glick
Author-Workplace-Name: Department of Economics, University of California Davis
Title: Productivity, Tradability, and the Long-Run Price Puzzle
Abstract: Long-run cross-country price data exhibit a puzzle. Today, richer countries exhibit higherprice levels than poorer countries, a stylized fact usually attributed to the Balassa-Samuelson effect. But looking back fifty years, this effect virtually disappears from thedata. What is often assumed to be a universal property is actually quite specific to recenttimes, emerging a half century ago and growing steadily over time. What mightpotentially explain this historical pattern? We develop an updated Balassa-Samuelsonmodel inspired by recent developments in trade theory, where a continuum of goods aredifferentiated by productivity, and where tradability is endogenously determined. Firmsexperiencing productivity gains are more likely to become tradable and crowd out firmsnot experiencing productivity gains. As a result the usual Balassa-Samuelsonassumption?that productivity gains be concentrated in the traded goods sector?emergesendogenously, and the Balassa-Samuelson effect on relative price levels likewise evolvesgradually over time.
Length: 30
File-URL: https://repec.dss.ucdavis.edu/files/kqzvmmm122AMwoZeSxPMZdo9/05-11.pdf
File-Format: application/pdf
Number: 278
Classification-JEL: F40, F43, N10, N70
KeyWords: Balassa-Samuelson theory,
Creation-Date: 20050609
Handle: RePEc:cda:wpaper:278