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The Price of Development

Author

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  • Fadi Hassan

    (Trinity College Dublin)

Abstract

The Penn-Balassa-Samuelson e?ect is the stylized fact about the positive correlation between cross-country price level and per-capita income. This paper provides evidence that the price-income relation is actually non-linearand turns negative in low income countries. The result is robust along both cross-section and panel dimensions. Additional robustness checks show thatbiases in PPP estimation and measurement error in low-income countries do not drive the result. The different stage of development between countriescan explain this new ?nding. The paper shows that a model linking the price level to the process of structural transformation captures the non-monotonic pattern of the data.

Suggested Citation

  • Fadi Hassan, 2014. "The Price of Development," The Institute for International Integration Studies Discussion Paper Series iiisdp446, IIIS.
    • Handle: RePEc:iis:dispap:iiisdp446
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    More about this item

    Keywords

    real exchange rate;

    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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