THE CONTRIBUTION OF SECTORAL PRODUCTIVITY
DIFFERENTIALS TO INFLATION IN GREECE
Heather D Gibson
Bank of Greece
Jim Malley
University of Glasgow and CESifo
ABSTRACT
This paper estimates the magnitude of the Balassa-Samuelson effect for Greece. We calculate the effect directly, using sectoral national accounts data, which permits estimation of total factor productivity (TFP) growth in the tradeables and nontradeables sectors. Our results suggest that it is difficult to produce one estimate of the BS effect. Any particular estimate is contingent on the definition of the tradeables sector and the assumptions made about labour shares. Moreover, there is also evidence that the effect has been declining through time as Greek standards of living have caught up on those in the rest of the world and as the non-tradeables sector within Greece catches up with the tradeables.
Keywords: Balassa-Samuelson effect, inflation, productivity
JEL classification: E31; F36; F41
Acknowledgements: We would like to thank a number of people at the Bank of Greece who have helped in preparing this paper. Presentations to the Monetary Policy Council yielded useful insights and comments and we would particularly like to thank George Demopoulos. Additionally, thanks are due to George Tavlas who commented on the paper at length as well as several colleagues who took time to discuss data issues with us, including Nick Zonzilos, Isaak Sampethai, and, especially, Daphne Nikolitsas. We would also like to thank Ioannis Papadogeorgis for his help in obtaining data from the OECD. The opinions and analysis presented in the paper are those of the authors and do not necessarily coincide with those of either the Bank of Greece or the Eurosystem.
Heather Gibson,
Economic Research Department,
Bank of Greece, 21 E. Venizelos Ave.,
102 50 Athens, Greece,
Tel. +30 210 320 2415
Fax +30 210 320 2432
Email: hgibson@bankofgreece.gr