EVENT: The Effects of Productivity Gains in Asian Emerging Economies: A Global Perspective

Abstract: This paper investigates international responses of key macroeconomic variables, particularly real exchange rates, to simultaneous shocks to productivity in the traded sector in eight Asian emerging and developing countries. We use panel estimation techniques to construct component submodels in a thirty country global vector autoregressive (GVAR) model. The GVAR approach can account for interaction among all countries and capture many potential international transmission channels. We identify the shocks by using sign restricted impulse responses. We find that increases in traded-sector productivity in Asian developing countries lead to a real appreciation of the domestic currencies, in line with the Balassa-Samuelson hypothesis. Openness and inflation also increase in many Asian developing countries as well as in other countries. Further, the traded-nontraded productivity differential in the US and other developed countries decreases, suggesting that there is a compositional shift in their production, away from traded to nontraded goods.