Testing the Productivity Bias Hypothesis in Middle East Countries

HALICIOGLU, Ferda and Ketenci, Natalya (2017): Testing the Productivity Bias Hypothesis in Middle East Countries.

Abstract

The divergence of the purchasing power parity from the equilibrium exchange rate is attributed to various factors. Productivity differentials between the countries are said to be one of the main sources, which lead to productivity bias hypothesis. The hypothesis suggests that a relatively more productive country should experience a real appreciation of its currency. This research aims at testing the hypothesis in Middle East countries using the time series data over the period of 1970-2015 and by employing ARDL approach to cointegration. The econometric results support for the hypothesis is only in the cases of Bahrain, Kuwait, and Saudi Arabia. This research also provides policy recommendations on the basis of empirical results.

• Item Type: MPRA Paper
• Language: English
• Keywords: Productivity bias hypothesis, cointegration, Middle East countries
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C21 - Cross-Sectional Models ; Spatial Models ; Treatment Effect Models ; Quantile Regressions; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; F - International Economics > F3 - International Finance > F30 - General

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