engleski

Harrod, Balassa and Samuelson (Re)Visit Eastern Europe

In this paper we investigate the Harrod, Balassa, and Samuelson (HBS) hypothesis in eleven eastern European transition countries. Unlike previous research, we test the HBS hypothesis with NACE6 quarterly data which enables us to divide data into tradable and nontradable sector as suggested by De Gregorio, Giovannini and Wolf (1994) without requiring unrealistic assumptions on the nature of the data. Contrary to previous results, we are able to show evidence for univariate HBS e ects only in Bulgaria, Croatia, Hungary and Poland. However, using panel cointegration tests we and strong statistical evidence for the HBS hypothesis within countries and across countries. Our results also demonstrate that cross country HBS holds under the assumption that the law of one price for tradables does not hold. Finally, we nd, contrary to theory, that government consumption negatively impacts relative prices.

Harrod Balassa Samuelson effect; Price convergance; Transition countries; panel

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