The Amendatory Balassa-Samuelson Effect

With the rapid development of China's economy, the RMB currency value attaches more and more attention. As an important economy variable, real exchange rate influences a country's external economy balance, so factors affecting it also have been a topic point concerned by pubic. Balassa—Samuelson Hypothesis is one of most important theories in determining the real exchange rate, which states the fact that the real exchange rate is influenced by the comparative labor productivity of non-traded sectors and traded sectors of both native country and foreign country. But it is deserved to take note to so much strengthen premises for Balassa—Samuelson Hypothesis, which builds on developed countries. That the Labor market is complete and inseparable is one of premises, which make sure that labor can arbitrage through flow between non-traded sectors and traded sectors, so from long run, the wages of both two sectors turn to be equal. Obviously this postulation contradicts with the reality of developing country like China, for problems such as labor's education level, industry protection, and information bring with restrictions to flow freely for labor across two sectors. So market separation exist and wages of non-traded and traded sectors can't match. In order to reflect the reality of China well, we turn the postulation of classic Balassa—Samuelson model that the wages of two sectors equal to the two sector's wages unequal. Through two-sample tests on statistics, we verify that wages of two sectors isn't equal, and then, we remodel through building on new premise, and got be verified empirically, on conclusion that the comparative wages of non-traded and traded sectors matter to the real exchange rate, and the correlation is positive, furthermore, the expansion of differentiation between the two sectors cause to appreciation of native currency.This article is composed of four chapters, the first is introduction, the 2nd further elaborate on the Balassa—Samuelson theory, empirical analysis set in the 3rd part, and the last chapters is conclusions and policy suggestions.