ARDL Approach to Test the Productivity Bias Hypothesis



The productivity bias hypothesis states that a relatively more productive country should experience a real appreciation of its currency. Most studies in the literature that have tested the hypothesis have employed cross-sectional data. Only a few studies have used time-series data and they have tested the hypothesis for only a small number of countries. In this paper the authors test the hypothesis by using time-series data over the 1960–90 period for a sample of 44 countries and with a relatively new method of cointegration known as the ARDL approach. For most countries there is strong evidence supporting the hypothesis.