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The Penn-Belassa-Samuelson effect in developing countries: price and income revisited

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  • Hassan, Fadi

Abstract

It is conventional wisdom that richer countries have a higher price level than poorer countries. This paper provides evidence that the price-income relationship is non-linear and that it turns negative, or at best flat, in low income countries. The result is robust along both cross-section and time-series dimensions. Additional robustness checks show that biases in PPP estimation and measurement error in low-income countries do not drive the result.

Suggested Citation

  • Hassan, Fadi, 2011. "The Penn-Belassa-Samuelson effect in developing countries: price and income revisited," LSE Research Online Documents on Economics 121930, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:121930
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    File URL: http://eprints.lse.ac.uk/121930/
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    References listed on IDEAS

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    More about this item

    Keywords

    Balassa-Samuelson; Penn effect; developing countries; non-parametric estimation; purchasing power parity; real exchange rate;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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