Template-Type: ReDIF-Article 1.0

Author-Name: Veronika Tengely
Author-Workplace-Name: Magyar Nemzeti Bank
Author-Email: tengelyv@mnb.hu

Title: In Search of the Lost Balassa–Samuelson Effect – The Changing Role of Services in the 21st Century

Abstract: It is a generally observed phenomenon that there is a positive relationship between
the level of economic development and the general price level. According to the
Balassa–Samuelson effect, the convergence observed in the price level is largely
achieved through higher services inflation. Based on the update of our previous
regression estimation results on the effect, the textbook Balassa–Samuelson effect
can be detected less and less in the case of Hungary. Moreover, the phenomenon
also shows a similar shift in the case of a wider group of countries. The structural
transformation taking place in the world economy nowadays, globalisation and the
infocommunication revolution are fundamentally transforming the role, tradability
and productivity of services, which also influences the fulfilment of the assumptions
of the theory. These factors – in particular with regard to market services – have
been assessed in terms of several aspects: based on growth patterns, the role of the
services sector in the growth path of modern economies is becoming increasingly
important, which is proved by both international and domestic data. Current
megatrends – such as globalisation, digitalisation, technological development and
artificial intelligence – are accelerating the rising productivity of services and leading
to changes in consumer habits and the globalisation of services. New structural
shifts affecting the services sector are also transforming the conditions associated
with the theory, thus weakening the practical operability of the Balassa–Samuelson
effect.

Classification-JEL: E31, F15, F18, F43, F63, O10, O30
Keywords: services, inflation, Balassa–Samuelson effect, growth, megatrends,
productivity
Pages: 5-27
Volume: 19
Issue: 2
Year: 2020
File-URL: https://en-hitelintezetiszemle.mnb.hu/letoltes/fer-19-2-st1-tengely.pdf
File-Format: Application/pdf
Handle: RePEc:mnb:finrev:v:19:y:2020:i:2:p:5-27