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Was the Balassa–Samuelson Effect Small? Uncaptured Quality Improvements and Japan’s Real Exchange Rate Appreciation, 1956–1970

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  • Hiroyuki Imai

    (University of Minnesota)

Abstract

Japan, China, and Central and Eastern European countries experienced substantial real exchange rate appreciation during their catch-up industrialization periods. In each, the measured Balassa–Samuelson effect was small while the greatest source of long-term currency appreciation was the real appreciation in tradables, increases in tradable prices expressed in the common currency, which went counter to PPP. For Japan in the 1950s and 1960s, we suspect price mismeasurement associated with uncaptured product quality improvements in manufactures. Our findings suggest that the Balassa–Samuelson effect would account for three quarters of Japan’s real exchange rate appreciation vis-à-vis the USA then.

Suggested Citation

  • Hiroyuki Imai, 2020. "Was the Balassa–Samuelson Effect Small? Uncaptured Quality Improvements and Japan’s Real Exchange Rate Appreciation, 1956–1970," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 62(4), pages 632-660, December.
    • Handle: RePEc:pal:compes:v:62:y:2020:i:4:d:10.1057_s41294-020-00120-5
    DOI: 10.1057/s41294-020-00120-5
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    More about this item

    Keywords

    Real exchange rate; Purchasing power parity; Balassa–Samuelson; Quality; Mismeasurement; Price indexes;
    All these keywords.

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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