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Harrod, Balassa and Samuelson (Re)Visit Eastern Europe

Robert J. Sonora orcid.org/0000-0003-4713-7082 ; School of Business Administration, Fort Lewis College
Josip Tica orcid.org/0000-0001-7937-1573 ; Faculty of Economics and Business

Abstract

In this paper we investigate Harrod Balassa Samuelson (HBS) effect in 11 transition countries. A large number
of empirical papers based on quite limited datasets has already been published on HBS in Eastern Europe. The
major contribution of this paper is the fact that we estimate HBS with NACE6 quarterly national account data
which enables us to divide data into tradable and nontradable sector as suggested by De Gregorio, Giovannini
and Wolf (1994) without any unrealistic assumptions. Following Bergstrand (1991) together with relative
productivity we also employ share of government consumption in GDP as an explanatory variable. Unlike in
previous studies, results have indicated that it is possible to find univariate cointegrating vectors only in
Bulgaria, Croatia and Lithuania, and panel cointegration test has indicated that it is possible to find strong
evidence of cointegration in post 2000 sample. For the post 1995 period, rejection of the null hypothesis is
dependent on the inclusion of government consumption as independent variable and methodology used (DOLS
vs. OLS cointegration test).

Keywords

Harrod Balassa Samuelson effect; Price convergence; Transition countries; panel cointegration tests

Hrčak ID:

136974

URI

https://hrcak.srce.hr/136974

Publication date:

24.6.2009.

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