Why South Africa Is Cheap for the Rich and Expensive for the Poor : Reconsidering the Balassa-Samuelson Effect
This paper investigates cross-sectoral productivity differentials in South African industry and their distributional consequences. The analysis shows that typically, traded sectors have experienced low productivity growth over the past decade, whil...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/575681563799522817/Why-South-Africa-Is-Cheap-for-the-Rich-and-Expensive-for-the-Poor-Reconsidering-the-Balassa-Samuelson-Effect http://hdl.handle.net/10986/32126 |
| Summary: | This paper investigates cross-sectoral
productivity differentials in South African industry and
their distributional consequences. The analysis shows that
typically, traded sectors have experienced low productivity
growth over the past decade, while skill intensive service
sectors have had significant productivity growth. This is
the inverse of the traditional Balassa-Samuelson sectoral
transformation hypothesis, where high wages in
high-productivity traded sectors increase wages throughout
the economy, thus increasing prices on non-traded goods and
revaluing the country's real exchange rate. Instead,
the higher productivity of non-traded sectors experienced in
South Africa induces a devaluation of the real exchange rate
and a contraction of the traded sectors. The results of the
estimation show evidence of this "inverse"
Balassa-Samuelson effect for agriculture and manufacturing
and in particular mining. This "inverse"
Balassa-Samuelson effect has important distributional
consequences: the high-productivity sectors are associated
with cheaper goods and services for wealthy households. This
in turn burdens poor households, which are more dependent on
traded goods, with higher prices, which are a consequence of
low productivity and high markups. |
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