Beyond Balassa and Samuelson: Real Convergence, Capital Flows, and Competitiveness in Greece

29 Pages Posted: 11 Nov 2015

See all articles by Ansgar Hubertus Belke

Ansgar Hubertus Belke

University of Duisburg-Essen - Department of Economics and Business Administration; IZA Institute of Labor Economics; Centre for European Policy Studies

Ulrich Haskamp

University of Duisburg-Essen - Department of Economics and Business Administration

Gunther Schnabl

University of Leipzig - Institute for Economic Policy

Holger Zemanek

University of Leipzig - Institute for Economic Policy

Multiple version iconThere are 2 versions of this paper

Date Written: October 20, 2015

Abstract

We scrutinize the role of capital flows for competitiveness in seven euro-area countries in the context of real convergence and crisis with a specific focus on Greece. The paper extends the seminal Balassa-Samuelson model to include international capital markets. Capital flows are assumed to be able to invert the traditional direction of transmission of real wage increases from the tradable to the non-tradable sector and to cause real wages to increase beyond productivity increases. Panel estimations for the period from 1995 to 2013 show evidence in favour of capital inflow-driven real wage increases in excess of productivity increases in Greece.

Keywords: Balassa-Samuelson effect, capital inflows, exchange rate regime, inflation, Estonia, Greece, Latvia, Lithuania, Portugal, Slovenia, Slovak Republic, panel model, productivity differential, wages

JEL Classification: E240, F160, F310, F320

Suggested Citation

Belke, Ansgar Hubertus and Haskamp, Ulrich and Schnabl, Gunther and Zemanek, Holger, Beyond Balassa and Samuelson: Real Convergence, Capital Flows, and Competitiveness in Greece (October 20, 2015). CESifo Working Paper Series No. 5557, Available at SSRN: https://ssrn.com/abstract=2688966

Ansgar Hubertus Belke

University of Duisburg-Essen - Department of Economics and Business Administration ( email )

Universitätsstr. 9
Essen, 45141
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for European Policy Studies ( email )

1 Place du Congres, 1000
Brussels, 1000
Belgium

Ulrich Haskamp

University of Duisburg-Essen - Department of Economics and Business Administration ( email )

Universitätsstr. 9
Essen, 45141
Germany

Gunther Schnabl (Contact Author)

University of Leipzig - Institute for Economic Policy ( email )

Institute for Economic Policy
Grimmaische Straße 12
Leipzig, 04109
Germany

HOME PAGE: http://www.wifa.uni-leipzig.de/iwp/

Holger Zemanek

University of Leipzig - Institute for Economic Policy ( email )

Institute for Economic Policy
Grimmaische Strasse 12
Leipzig, 40109
Germany

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