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Inverse Balassa–Samuelson effect in Mexico: the role of the oil sector

Author

Listed:
  • Arnoldo López-Marmolejo

    (Inter-American Development Bank (IDB))

  • Daniel Ventosa-Santaulària

    (Centro de Investigación Y Docencia Económicas (CIDE))

  • Gerardo Sebastián Diaz Muro

    (Centro de Investigación Y Docencia Económicas (CIDE))

Abstract

In contrast to the oil boom in the USA, Mexico’s oil production has been declining continuously for the last 15 years. Lower output in the sector has affected various aspects of Mexico’s economy, one of which we found to be the real exchange rate: the decrease in productivity in the oil sector compared to the non-tradable sector, which in turn has caused a depreciation of the real exchange rate. This is an inverse Balassa–Samuelson effect, and the experience of Mexico serves as a wake-up call to countries whose economies are highly dependent on non-renewable commodities. To perform our analysis, we begin by calculating productivity by sector as total factor productivity. We then estimate the determinants of the real exchange rate by including the productivity of Mexico’s oil- and non-oil tradable sectors in order to disentangle their contributions.

Suggested Citation

  • Arnoldo López-Marmolejo & Daniel Ventosa-Santaulària & Gerardo Sebastián Diaz Muro, 2023. "Inverse Balassa–Samuelson effect in Mexico: the role of the oil sector," Empirical Economics, Springer, vol. 65(5), pages 2273-2300, November.
    • Handle: RePEc:spr:empeco:v:65:y:2023:i:5:d:10.1007_s00181-023-02427-5
    DOI: 10.1007/s00181-023-02427-5
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    References listed on IDEAS

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    1. Olk, Christopher, 2024. "How much a dollar cost: Currency hierarchy as a driver of ecologically unequal exchange," World Development, Elsevier, vol. 180(C).

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    More about this item

    Keywords

    Real exchange rate; Balassa–Samuelson; Productivity; Oil;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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