Editing Balassa–Samuelson effect (section)

===Protectionism===
Lipsey and Swedenborg (1996) show a strong correlation between the barriers to [[free trade]] and the domestic [[Consumer price index|price level]]. If wealthy countries feel more able to protect their native producers than [[developing nation]]s (e.g. with [[tariff]]s on agricultural imports) we should expect to see a correlation between rising [[Gross domestic product|GDP]] and rising prices (for goods in protected industries - especially food).

This explanation is similar to the BS-effect, since an industry needing protection must be measurably less productive in the world market of the [[commodity]] it produces. However, this reasoning is slightly different from the pure BS-hypothesis, because the goods being produced are 'traded-goods', even though protectionist measures mean that they are more expensive on the domestic market than the international market, so they will not be "[[export|traded]]" internationally<ref group=note>A typical reason for, and result of, [[trade barriers]], is that domestic productivity of some tradable-good is below international productivity. In order to [[Protectionism|protect]] domestic producers import barriers are raised, allowing the local price for the traded good to rise beyond the international price. If this were a common phenomenon then one of the key assumptions of the BS-hypothesis (that traded-goods follow the [[Purchasing power parity|PPP]]-hypothesis) would be invalid. However, the essence of the Balassa–Samuelson mechanism would still remain: Even without [[Free trade]] it may be harder to increase the productivity in the service sector as rapidly as in mass-production, so if money exchange rates are still based on the output of mass production the differentials in price level could still be caused by the Balassa–Samuelson effect.</ref>