Balassa-Samuelson Hypothesis: A Test of Turkish Economy by ARDL Bound Testing Approach

Balassa-Samuelson effect is a popular theme at last years that introduced by Bèla Balassa (1964) and Paul Samuelson (1964). This concept, suggests that a differentiation at international level between the relative rates of productivity of the tradable and non tradable sectors may cause structural and permanent deviations from the purchasing power parity. In this essay, related variables are tested through Balassa-Samuelson Effect in terms of Turkey-European Economy. The choice of econometric technique used to estimate the model was important because the regressors in the model appeared to be a mixture of I(0) and I(1) processes. Thus ARDL bounds testing approaches to co integration analysis in estimating the long-run determinants of the real exchange rates. Given the dataset and econometric techniques used, the results do not support the B-S hypothesis.