Editing Balassa–Samuelson effect (section)

===Equivalent Balassa–Samuelson effect within a country===
The average asking price for a house in a prosperous city can be ten times that of an identical house in a depressed area of the ''same country''. Therefore, the [[real exchange rate|RER]]-deviation exists independent of what happens to the ''nominal exchange rate'' (which is always 1 for areas sharing the same currency). Looking at the price level distribution within a country gives a clearer picture of the effect, because this removes some complicating factors:
# The [[econometrics]] of [[purchasing power parity]] (PPP) tests are complicated by [[Exchange rate|nominal exchange rate]] noise. (This noise would be an econometric problem, even assuming that the exchange rate volatility is a pure [[Standard error (statistics)|error term]]).
# There may be some real economy border effects between countries which limit the flow of tradables or people.
# [[Monetary]] effects, and exchange rate movements<ref group=note>There may be a causal link from exchange rates to productivity, as well as (or instead of) the opposite direction of causation (from productivity to RERs) given by the BS-hypothesis model. [[Michael E. Porter]]'s ''The Competitive Advantage of Nations'' says that currency depreciations can reduce growth, and that 'overvalued' currencies can contribute to domestic productivity growth by 'forcing' efficiency improvements in the tradables sector (by exposing it to international competition at unfavourable [[terms of trade]]). In fact, [[Singapore]] gave "Competitive Appreciation" as the official reason for the high [[SGD]] policy. (Lu & Yu 1999). Other mechanisms through which RERs can affect productivity growth have been advanced, such as the idea that structural transitions caused by exchange rate volatility have a disruptive effect on the real economy. There is some econometric evidence that the [[causality]] from exchange rates to productivity is more significant than the reverse, i.e. the BS-effect. (For instance, {{Citation |last=Strauss |first=Jack |year=1999 |title=Productivity Differentials, the Relative Price of Nontradables and Real Exchange Rates |journal=[[Journal of International Money and Finance]] |volume=18 |issue=3 |pages=383–409 |doi=10.1016/S0261-5606(99)85003-7 }}.)</ref> can affect the real economy and complicate the picture, a problem eliminated if comparing regions that use the same [[currency]] unit.
# [[Taxes]] are very different in many countries, whereas in a same country taxes are usually equal or similar.

A pint of [[pub]] beer is famously more expensive in the south of [[England]] than the north, but supermarket [[beer]] prices are very similar. This may be treated as [[anecdotal evidence]] in favour of the Balassa–Samuelson hypothesis, since supermarket beer is an easily transportable, traded good. (Although pub beer is transportable, the pub itself is not.) The BS-hypothesis explanation for the price differentials is that the 'productivity' of pub employees (in pints served per hour) is more uniform than the 'productivity' (in foreign currency earned per year) of people working in the dominant tradable sector in each region of the country ([[financial services]] in the south of England, [[manufacturing]] in the north). Although the employees of southern pubs are not significantly more productive than their counterparts in the north, southern pubs must pay wages comparable to those offered by other southern firms in order to keep their staff. This results in southern pubs incurring a higher labour cost per pint served.