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...

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Main Authors:	Dadam, Vincent, Hanusch, Marek, Viegi, Nicola
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2019
Subjects:	EXCHANGE RATE PRODUCTIVITY ECONOMIC OPENNESS TRADED SECTOR PROTECTIONISM REAL EXCHANGE RATE DEPRECIATION INCOME DISTRIBUTION
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

id	okr-10986-32126
recordtype	oai_dc
spelling	okr-10986-321262022-08-16T00:24:05Z Why South Africa Is Cheap for the Rich and Expensive for the Poor : Reconsidering the Balassa-Samuelson Effect Dadam, Vincent Hanusch, Marek Viegi, Nicola EXCHANGE RATE PRODUCTIVITY ECONOMIC OPENNESS TRADED SECTOR PROTECTIONISM REAL EXCHANGE RATE DEPRECIATION INCOME DISTRIBUTION 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. 2019-07-29T17:36:04Z 2019-07-29T17:36:04Z 2019-07 Working Paper 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 English Policy Research Working Paper;No. 8942 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Africa South Africa
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	EXCHANGE RATE PRODUCTIVITY ECONOMIC OPENNESS TRADED SECTOR PROTECTIONISM REAL EXCHANGE RATE DEPRECIATION INCOME DISTRIBUTION
spellingShingle	EXCHANGE RATE PRODUCTIVITY ECONOMIC OPENNESS TRADED SECTOR PROTECTIONISM REAL EXCHANGE RATE DEPRECIATION INCOME DISTRIBUTION Dadam, Vincent Hanusch, Marek Viegi, Nicola Why South Africa Is Cheap for the Rich and Expensive for the Poor : Reconsidering the Balassa-Samuelson Effect
geographic_facet	Africa South Africa
relation	Policy Research Working Paper;No. 8942
description	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.
format	Working Paper
author	Dadam, Vincent Hanusch, Marek Viegi, Nicola
author_facet	Dadam, Vincent Hanusch, Marek Viegi, Nicola
author_sort	Dadam, Vincent
title	Why South Africa Is Cheap for the Rich and Expensive for the Poor : Reconsidering the Balassa-Samuelson Effect
title_short	Why South Africa Is Cheap for the Rich and Expensive for the Poor : Reconsidering the Balassa-Samuelson Effect
title_full	Why South Africa Is Cheap for the Rich and Expensive for the Poor : Reconsidering the Balassa-Samuelson Effect
title_fullStr	Why South Africa Is Cheap for the Rich and Expensive for the Poor : Reconsidering the Balassa-Samuelson Effect
title_full_unstemmed	Why South Africa Is Cheap for the Rich and Expensive for the Poor : Reconsidering the Balassa-Samuelson Effect
title_sort	why south africa is cheap for the rich and expensive for the poor : reconsidering the balassa-samuelson effect
publisher	World Bank, Washington, DC
publishDate	2019
url	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
_version_	1764475870849794048

Why South Africa Is Cheap for the Rich and Expensive for the Poor : Reconsidering the Balassa-Samuelson Effect

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