Empirical Study Of Purchasing Power Parity: The Balassa-Samuelson Effect In Indonesia

Putri Ayu, Chairani Fadhila Pravitasari


This study empirically investigate the Balassa-Samuelson theory through the analysis of the long-term relationship of the differences effect in productivity on the exchange rate deviation from Purchasing Power Parity (PPP) using the Panel Dynamic Ordinary Least Squares (POLS) method. The data used is panel data with cross-sectional data from 4 of Indonesia's largest trading partners, namely the United States, Japan, Korea, Singapore and the time series data from the year 1967 to 2015. The result is that there is a long-term relationship between differences in productivity to the exchange rate deviation from PPP in Indonesia.


Keywords: Balassa-Samuelson effect, PDOLS, real exchange rate, real GDP per capita, ratio of trade balance to GDP

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