Balassa Samuelson effect on real exchange rate in emerging markets

The real exchange rate, which has an important position in directing the country's economy and determines the position of the country in international trade, is an important factor. The movements in the real exchange rate and the methods used to determine the real exchange rate are important for long-term relations. Since it is decisive for the country's economy, many approaches have been put forward regarding the real exchange rate. Among these approaches, purchasing power parity (PPP) is the approach most discussed by economists. Based on the law of one price and assuming that international prices are equal, PPP has received criticism for not making sectoral discrimination. As a result of the criticisms, the Balassa Samuelson hypothesis, which deals with the productivity difference between sectors, has been added to the literature. In this study, it was aimed to test the validity of the Balassa Samuelson hypothesis on the basis of annual data between 1994 and 2020 for the six selected developing countries. As a result of the cross-sectional dependency test, it was determined that the countries were correlated with each other.As a result of the second generation unit root test, which takes into account the inter-unit correlation, it is concluded that the series have unit roots and they are stationary by taking their first-order differences. Westerlund (2007) panel cointegration test was deemed appropriate as a result of the varying variance detection and the heterogeneity of the slope coefficients, which violated the OLS estimator assumption. The long-term relationship between the variables was determined and the long-term coefficients were obtained with the AMG and CCE estimators. As a result of the estimators obtained, he stated that the BS hypothesis is valid in the majority of the countries considered in the trend-free model. Dumitrescu and Hurlin panel causality test was used to determine the direction and strength of the long-term relationship between variables