Searching for Dutch Disease: Natural Resources and Industrial Growth

24 Pages Posted: 29 Mar 2013

See all articles by Mikhail Leonov

Mikhail Leonov

New Economic School (NES)

Natalya Volchkova

New Economic School (NES); Center for Economic and Financial Research (CEFIR)

Date Written: January 28, 2013

Abstract

Our study employs a difference-in-differences technique to test two channels of Dutch disease effects predicted by the theory. First, if there is a deindustrialization in resource-rich countries, then the outflow of resources from the manufacturing sector should put industries with higher returns to scale at a disadvantage relative to industries with smaller returns to scale in resource-rich economies compared to resource-poor economies. And second, the more “open” an industry is to world trade, the more negatively it should be affected by appreciation of currency in a resource-rich economy compared to an economy poorer in resources. Empirical analysis of cross-country industrial growth data over 1980-2000 rejects these two hypotheses. Our results challenge the empirical relevance of the effects of Dutch disease in resource-rich economies and emphasize other channels of the resource curse phenomenon. We discuss several reasons why the theoretically appealing notion of Dutch disease could be overshadowed in real economies.

Keywords: Dutch disease, industrial growth

JEL Classification: O13, F43, F11

Suggested Citation

Leonov, Mikhail and Volchkova, Natalya, Searching for Dutch Disease: Natural Resources and Industrial Growth (January 28, 2013). Available at SSRN: https://ssrn.com/abstract=2241293 or http://dx.doi.org/10.2139/ssrn.2241293

Mikhail Leonov (Contact Author)

New Economic School (NES) ( email )

100A Novaya Street
Moscow, Skolkovo 143026
Russia

Natalya Volchkova

New Economic School (NES)

100A Novaya Street
Moscow, Skolkovo 143026
Russia

Center for Economic and Financial Research (CEFIR) ( email )

47 Nakhimovsky Prospect, Office #720
117418 Moscow
Russia
+7-095-332 4083 (Phone)

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