Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/123199 
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper No. 5557
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We scrutinize the role of capital flows for competitiveness in seven euro-area countries in the context of real convergence and crisis with a specific focus on Greece. The paper extends the seminal Balassa-Samuelson model to include international capital markets. Capital flows are assumed to be able to invert the traditional direction of transmission of real wage increases from the tradable to the non-tradable sector and to cause real wages to increase beyond productivity increases. Panel estimations for the period from 1995 to 2013 show evidence in favour of capital inflow-driven real wage increases in excess of productivity increases in Greece.
Subjects: 
Balassa-Samuelson effect
capital inflows
exchange rate regime
inflation
Estonia
Greece
Latvia
Lithuania
Portugal
Slovenia
Slovak Republic
panel model
productivity differential
wages
JEL: 
E24
F16
F31
F32
Document Type: 
Working Paper
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