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The Balassa-Samuelson Hypothesis and Oil Price Shocks in a Small Open Economy: Evidence from Cyprus

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  • Charalambos Pattichis
  • Mona Kanaan

Abstract

Focusing on a small open economy, this paper provides very supportive evidence for the Balassa-Samuelson productivity-bias proposition. Using a battery of tests we show that a positive and significant long run relationship exists between the relative price of nontraded goods and real income per capita. An implication of this result is that the prices of services in Cyprus will rise, if EU membership leads to income convergence with the rest of the EU. We have, furthermore, demonstrated that Rogoff's hypothesis, that real oil price changes negatively affect the price of nontradables, is supported by the empirical results. Copyright Kluwer Academic Publishers 2004

Suggested Citation

  • Charalambos Pattichis & Mona Kanaan, 2004. "The Balassa-Samuelson Hypothesis and Oil Price Shocks in a Small Open Economy: Evidence from Cyprus," Open Economies Review, Springer, vol. 15(1), pages 45-56, January.
    • Handle: RePEc:kap:openec:v:15:y:2004:i:1:p:45-56
    DOI: 10.1023/B:OPEN.0000009424.34810.0a
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    1. Chien-Chung Nieh & Yu-Shan Wang, 2005. "ARDL Approach to the Exchange Rate Overshooting in Taiwan," Review of Quantitative Finance and Accounting, Springer, vol. 25(1), pages 55-71, August.
    2. repec:wsr:wpaper:y:2011:i:072 is not listed on IDEAS
    3. Jayaraman, T.K. & Choong, Chee-Keong, 2009. "Growth and oil price: A study of causal relationships in small Pacific Island countries," Energy Policy, Elsevier, vol. 37(6), pages 2182-2189, June.

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    Keywords

    Balassa-Samuelson hypothesis; nontradables;

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