Productivity, tradability, and the long-run price puzzle

Arbeitspapier

Long-run cross-country price data exhibit a puzzle. Today, richer countries exhibit higher price levels than poorer countries, a stylized fact usually attributed to the Balassa- Samuelson effect. But looking back fifty years, this effect virtually disappears from the data. What is often assumed to be a universal property is actually quite specific to recent times, emerging a half century ago and growing steadily over time. What might potentially explain this historical pattern? We develop an updated Balassa-Samuelson model inspired by recent developments in trade theory, where a continuum of goods are differentiated by productivity, and where tradability is endogenously determined. Firms experiencing productivity gains are more likely to become tradable and crowd out firms not experiencing productivity gains. As a result the usual Balassa-Samuelson assumption - that productivity gains be concentrated in the traded goods sector - emerges endogenously, and the Balassa-Samuelson effect on relative price levels likewise evolves gradually over time.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 05-11

Classification and Topics

• Classification: Wirtschaft ; Macroeconomic Aspects of International Trade and Finance: General ; Economic Growth of Open Economies ; Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: General, International, or Comparative ; Economic History: Transport, International and Domestic Trade, Energy, Technology, and Other Services: General, International, or Comparative
• Subject: Preisniveau ; Produktivität ; Internationaler Preiszusammenhang ; Monopolistischer Wettbewerb ; Außenwirtschaft ; Welt ; Balassa-Samuelson Effekt

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bergin, Paul ; Taylor, Alan M. ; Glick, Reuven
• Event: Veröffentlichung
• (who): University of California, Department of Economics
• (where): Davis, CA
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/31368
• Last update: 10.03.2025, 11:45 AM CET