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A Formalisation and Test of the Factor Productivity Explanation of International Differences in Service Prices

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  • Falvey, Rodney E
  • Gemmell, Norman

Abstract

This paper extends and integrates previous models of the determinants of international differences in the prices of services relative to tradable commodities. The authors provide a model capable of identifying the effects of differences in (total) factor productivity on service price differences separately from the effects of factor endowment differences. They propose a method for measuring these factor productivity difference effects and apply this to a sample of sixty countries in 1980. The authors' results provide support both for the 'endowment difference' and 'productivity difference' explanations suggesting that, in this context at least, the two hypotheses are complements rather than competitors. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Falvey, Rodney E & Gemmell, Norman, 1996. "A Formalisation and Test of the Factor Productivity Explanation of International Differences in Service Prices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 85-102, February.
    • Handle: RePEc:ier:iecrev:v:37:y:1996:i:1:p:85-102
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    Cited by:

    1. Gemmell, Norman, 2014. "The Prices of Goods and Services in New Zealand : An International Comparison," Working Paper Series 3276, Victoria University of Wellington, Chair in Public Finance.
    2. Falvey, Rodney E & Gemmell, Norman & Chang, Cherry & Zheng, Guanyu, 2014. "Explaining International Differences in the Prices of Tradables and Non-Tradables (with a New Zealand Perspective)," Working Paper Series 18835, Victoria University of Wellington, Chair in Public Finance.
    3. Oscar Iván Ávila Montealegre & Mauricio Rodríguez Acosta & Hernando Zuleta González, 2014. "The Balassa-Samuelson Hypothesis and Elderly Migration," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 32(74), pages 1-8, June.
    4. Balvers, Ronald J. & H. Bergstrand, Jeffrey, 1997. "Equilibrium real exchange rates: closed-form theoretical solutions and some empirical evidence," Journal of International Money and Finance, Elsevier, vol. 16(3), pages 345-366, June.
    5. Falvey, Rod, 1999. "Trade liberalization and factor price convergence," Journal of International Economics, Elsevier, vol. 49(1), pages 195-210, October.
    6. Gemmell, Norman, 2014. "The Prices of Goods and Services in New Zealand : An International Comparison," Working Paper Series 18824, Victoria University of Wellington, Chair in Public Finance.
    7. Falvey, Rodney E & Gemmell, Norman & Chang, Cherry & Zheng, Guanyu, 2014. "Explaining International Differences in the Prices of Tradables and Non-Tradables (with a New Zealand Perspective)," Working Paper Series 3425, Victoria University of Wellington, Chair in Public Finance.

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