TESTING THE PRODUCTIVITY BIAS HYPOTHESIS FOR BRAZIL

Abstract

Purpose- Productivity Bias Hypothesis (Balassa-Samuelson hypothesis) implies that currency appreciates in a relatively more productive country. The focus of this study is to test productivity bias hypothesis for Brazil by employing time series data over the period 1980-2018. Methodology- Time series data is analyzed by Autoregressive Distributed Lag (ARDL) method of cointegration. Findings-Stationarity of the variables are supported by Augmented Dickey Fuller (ADF) and Phillips Perron (PP) tests. F bounds test and error correction model suggest that variables are cointegrated. Conclusion- Empirical analysis does not support the evidence in favor of productivity bias hypothesis for Brazil over the selected period.