Balassa-Samuelson effect
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Paul Samuelson was an economist. He received a Ph.D. from Harvard and taught at Massachusetts Institute of Technology from 1940. For his fundamental contributions to nearly all branches of economics, he became in 1970 the third person to be awarded the Nobel Prize in Economic Sciences. Died on 13th of December, 2009.
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In particular, it captures the impact of higher productivity growth in terms of internationally traded goods – typically manufactures – on the relative prices and then on the real equilibrium exchange rate (Q), defined precisely by the ratio between the price index of tradable goods (PC) and the price index of non-traded goods (PN). In general, the BS effect explains why the prices of tradable goods tend to converge (net of transaction prices) at the international level, while this is not true for the prices of non-tradable goods, which indeed tend to be higher in richer countries (or in countries where the labour productivity in the tradable sector is higher).
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A pint of pub beer is famously more expensive in the south of England than the north, but supermarket beer prices are very similar. This may be treated as anecdotal evidence in favor of the Balassa–Samuelson hypothesis, since supermarket beer is an easily transportable, traded good. (Although pub beer is transportable, the pub itself is not.) The BS-hypothesis explanation for the price differentials is that the 'productivity' of pub employees (in pints served per hour) is more uniform than the 'productivity' (in foreign currency earned per year) of people working in the dominant tradable sector in each region of the country (financial services in the south of England, manufacturing in the north). Although the employees of southern pubs are not significantly more productive than their counterparts in the north, the pubs must pay wages comparable to those offered by other southern firms in order to keep their staff. This results in southern pubs incurring a higher labour cost per pint served.