Abstract
The Balassa-Samuelson effect provides a theoretical explanation for the deviation of the real exchange rate (RER) from its purchasing power parity based on the heterogeneous productivity growth in the tradable and non-tradable sectors. This paper bridges the literature on foreign direct investment (FDI) spillovers with the Balassa-Samuelson effect by theoretically and empirically showing that (1) the productivity impact of inward FDI is notably larger in the tradable sector than in the non-tradable sector, generating an appreciation effect on the RER; (2) the magnitude of heterogeneous productivity impacts of inward FDI in the tradable and non-tradable sectors is commensurate with the technological backwardness in the two sectors relative to the world leaders.
| Original language | English |
|---|---|
| Pages (from-to) | 1101-1121 |
| Journal | The Journal of International Trade and Economic Development |
| Volume | 30 |
| Issue number | 7 |
| Online published | 8 Jun 2021 |
| DOIs | |
| Publication status | Published - 2021 |
UN SDGs
This output contributes to the following UN Sustainable Development Goals (SDGs)
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SDG 8 Decent Work and Economic Growth
Research Keywords
- foreign direct investment
- productivity impacts
- real exchange rate
- Tradable and non-tradable sectors
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