The relative price of nontraded goods and sectoral total factor productivity : An empirical investigation

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)444-452
Journal / PublicationReview of Economics and Statistics
Volume85
Issue number2
Publication statusPublished - May 2003

Abstract

This paper examines the relationship between the relative price of nontraded goods and sectoral total factor productivities (TFPs) in the context of the Balassa-Samuelson model. With perfect capital mobility internationally and perfect factor mobility domestically, the relative price of nontraded goods is predicted to be independent of preferences over traded and nontraded goods, and completely determined by TFPs in the traded- and nontraded-goods sectors. Panel cointegration and unit root tests, applied to a panel of fourteen OECD economies, indicate that the relative price of nontraded goods and the labor-share-adjusted TFP differential are cointegrated with the unit cointegration vector.