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A test of the Balassa-Samuelson effect applied to Chinese regional data

By Qian Guo and Stephen G. Hall

Abstract

In this paper we investigate the relevance of the Balassa-Samuelson effect to the\ud determination of regional inflation in China, for the period 1985 – 2000. To do this,\ud we first construct annual measures of Chinese inflation and industry input on regional\ud and sectoral basis. Then we generalize the Asea and Mendoza (1994) settings to\ud consider asymmetric productivity shocks across sectors. Testing this model on\ud Chinese Regional Data aid of non-stationary panel data techniques, it shows that our\ud extended theoretical model is a good empirical representation of the Chinese data\ud which supports the Balassa-Samuelson effect. Moreover, we are able to test the Asea\ud and Mendoza (1994) version of our general model and find that the restrictions are\ud rejected

Publisher: Dept. of Economics, University of Leicester
Year: 2008
OAI identifier: oai:lra.le.ac.uk:2381/7482

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