The Penn effect and transition: the new EU member states in international perspective

We aim to put comparative price developments of transition economies in an international perspective. We argue that estimating simple price-productivity relationships without the inclusion of other explanatory factors connected to reform effort might severely bias estimates for CEEC and CIS economies. Our results imply that, when controlling for reform effort and therefore avoiding this endogeneity problem, the price-productivity elasticity for CEEC and CIS economies was not different from that of non-transition economies during the first 15 years of transition. Comparative Economic Studies (2013) 55, 99-119. doi: 10.1057/ces.2012.35; published online 29 November 2012 Keywords: Balassa-Samuelson, transition JEL Classifications: F40, F43
INTRODUCTION AND MOTIVATION Aggregate price levels expressed in a common currency at going nominal exchange rates are generally higher in richer than in poorer economies, an observation dubbed the 'Penn [...]