An Estimation of Balassa-Samuelson: Effect in Albania

The purpose of this paper is to verify the presence of Balassa – Samuelson effect and estimate it for Albanian economy. Investigation of Balassa-Samuelson (BS) constitutes an important aspect for the monetary policy pursued by central banks, because it lays emphasis on the relation between relative productivity of tradable to nontradable sectors of a small and open economy and relative prices of both sectors. Theoretically, the presence of a positive relation would support the fact that inflation is influenced by relative productivity growth. Making use of econometric models, this paper estimates the domestic and foreign BS effect on inflation. In order to carry out the estimations, data on value added and employees’ number in the economy sectors are made use of.