| Abstract: | The structure of prices of goods entering into international trade relative to those that do not plays a key role in the Balassa-Samuelson explanation of why countries ‘exchange rates differ systematically from their currencies’ purchasing power. the B-S analysis leads to the proposition that the tradable-nontradable price difference is lower for rich countries than for poor. This paper examines the gap, using prices collected by the International Comparison Programme. A variety of regressions were run to see if indeed the difference between tradable and nontradable price parities moved with income in the way B-S expected. They did. |
