Abstract
We are concerned with the effects of a resource boom upon the industries of a trading economy. Such effects have come to be known in the literature as “Dutch Disease.” We look into related supply-side aspects which appear to be significant if seen from the viewpoint of microeconomic general equilibrium theory under conditions of decreasing returns to scale in production. Several comparative-statics results will be presented for the small-country case where there may also exist nontraded goods. In particular, we argue that in the presence of diseconomies of scale input substitution becomes a crucial issue. We also briefly discuss welfare implications in terms of changes in factor prices and GNP.
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