Abstract
This chapter examines concisely both the Dutch disease and the resource curse. The analysis starts by highlighting some of the best-known empirical studies in the literature regarding the resource curse and indicates that any short- or long-term dire implications of a sudden drop or rise in commodity prices, particularly oil. is contingent upon the policies in place. Subsequently, it employs a standard framework under the assumption of the existence of two separate sectors, namely, tradable (oil) and non-tradable (nonoil) in order to examine the impact of a large and sudden stream of oil revenues on RER and output. Moreover, this chapter discusses the options for exchange rate management and other macroeconomic issues that frequently arise during oil booms. The aim is to suggest possible alternatives for policymakers in the ESCWA region through which these difficulties can be managed, thereby avoiding both short- and long-term negative effects that frequently draw the attention of academics and policymakers.
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