Searching for Dutch Disease: Natural Resources and Industrial Growth
24 Pages Posted: 29 Mar 2013
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: Suggested Citation
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