An empirical analysis on the law of purchasing power parity and international economic deepening

Abstract

This article empirically investigates the effect of international trade on the deviation of Purchasing Power Parity (PPP) law and on the international economic deepening in four developed countries (Japan, USA, UK and France), and three Asian developing ones (South Korea, Singapore and Malaysia), using International Financial Statistics (IFS) data issued by International Monetary Fund (IMF). Our results show that in some developed countries the imbalance effect of balance of payments is significant for both international deepening and deviation from PPP, and in some developing countries the volume effect of balance of payments is significant for international deepening.

Keywords:

• law of purchasing power parity
• international deepening
• nonparametric regression method
• conditional correlation

JEL Classification::

• F30
• F32

Acknowledgements

I am very grateful to an anonymous referee.

Notes

¹ Credit minus debit () is exactly the value of current (and/or capital) account part.