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The Penn-Belassa-Samuelson Effect in Developing Countries: Price and Income Revisited

Author

Listed:
  • Fadi Hassan
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

  • Fadi Hassan, 2011. "The Penn-Belassa-Samuelson Effect in Developing Countries: Price and Income Revisited," CEP Discussion Papers dp1056, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp1056
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    File URL: https://cep.lse.ac.uk/pubs/download/dp1056.pdf
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    References listed on IDEAS

    as
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    7. Angus Deaton & Alan Heston, 2010. "Understanding PPPs and PPP-Based National Accounts," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 1-35, October.
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    Blog mentions

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    1. Is it cheaper to live in poor economies?
      by Economic Logician in Economic Logic on 2011-07-20 19:01:00

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    Cited by:

    1. Eiji Fujii, 2015. "Reconsidering The Price–Income Relationship Across Countries," Pacific Economic Review, Wiley Blackwell, vol. 20(5), pages 733-760, December.

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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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