Productivity bias hypothesis: evidence from South Asia

Most existing studies have attempted to test the productivity bias hypothesis by making use of the cross-section data. This article utilizes country-level time series data from Penn World Tables to examine the productivity bias hypothesis for five South Asian economies (namely, Bangladesh, India, Nepal, Pakistan and Sri Lanka). We make use of Johansen’s cointegration approach and vector error correction modelling. The empirical analysis presented in this article shows that purchasing power parity theory holds for all countries considered. However, the productivity bias hypothesis appears to hold only in the case of Bangladesh and Nepal.