The Dutch Disease, the Staple Thesis, and the Recent Natural Resource Boom in South America

Abstract

This chapter addresses the subject of the adverse developmental effects of the Dutch disease: the theory, the experience of South America over the last decade, and the economic policy management issues concerning what to do about it. The chapter is organized as follows. The first section discusses the mechanisms (not confined to real exchange rate appreciation) through which a natural resource boom can lead to deindustrialization and also the conditions under which such a boom could have favorable developmental effects. I then turn in the second section to review the trends toward real appreciation and falling industrial profitability that have prevailed during most of the last decade in a number of South American economies. The third section discusses what can economic policy do to neutralize the adverse developmental effects of the Dutch disease. A final section concludes.