Time-Series Support for Balassa's Productivity-Bias Hypothesis: Evidence from Korea |
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| Authors: | Mohsen Bahmani-Oskooee Hyun-Jae Rhee |
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| Institution: | Bahmani-Oskooee: The University of Wisconsin-Milwaukee, Milwaukee, WI 53201.;Rhee: Chongjie University, Chongju 360–764, Korea. We would like to thank the two anonymous referees. We alone remain responsible for any errors |
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| Abstract: | In this paper we use the Johansen and Juselius cointegration technique and quarterly data over the period 1979–1993 to test the productivity-bias hypothesis between Korea and four of its major trading partners (Germany, Japan, the United Kingdom, and the United States). The results show that in all four cases the deviation of purchasing-power parity (PPP) from the equilibrium exchange rate has a long-run relationship with the productivity ratios, supporting the notion that as Korea becomes relatively more productive, the Korean won appreciates in real terms. |
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