Dutch Disease Effects Research Articles

Beyond the Resource Curse: Leveraging Artificial Intelligence to Enhance Green Development Welfare

This study examines the relationship between the resource curse (RC) and green development welfare (GDW) through the influence of artificial intelligence (AI) on emerging technologies. We explore the critical question: How does resource abundance hinder green development, and how can AI mitigate this effect? Our examination of 15 years of panel data from 282 Chinese cities demonstrates a significant negative correlation: a 1% increase in RC correlates with a 0.422% reduction in GDW. AI appears as a crucial factor capable of counteracting the detrimental impact of RC, indicating that technological innovation is essential for promoting sustainable development. This study's distinctive contribution is the incorporation of AI into the GDW framework, providing novel insights into the varying impacts of RC across different levels of GDW. By differentiating resource abundance (RA) from resource dependence (RG), we illustrate that both RA and RG substantially impede GDW, with the negative effects amplifying at higher GDW levels. We discover that AI can overcome the limitations imposed by RC by reducing terms-of-trade fluctuations, mitigating Dutch disease effects, and diminishing crowding-out effects. Our research underscores the importance of AI in alleviating the adverse impacts of RC on GDW and recommends augmenting investment in AI research and application, especially in resource-rich cities, to advance sustainable development.

Pakistan: Withholdingisation of the Economic System—A Source of Revenue, Civil Strife, or Dutch Disease+?

The paper takes an incisive shot at the systemic inadequacies that have tiptoed into the economic order of the state over time via the apparently innocuous mechanism of withholding taxes. Withholding tax—a legitimate instrument of preponing the state revenues on clearly identifiable chunks of incomes—has historically been resorted to by most states, and to that extent it should be normal with Pakistan, too. However, what has happened in Pakistan is that the tool of withholding taxation has been used as a source of revenues way too large in scale, size, scope and intensity. In addition to the pulling forward of tax collection on clearly demarcated chunks of incomes, a large number of transactions have also been roped into its nexus and then charged to tax by presumptivising gross receipts as income—a withholdingisation of the sorts not only of the tax system but of the entire economic system as a weighty portion of ubiquitous withholding taxes gets stuck into the pricing structure of the final goods and services produced in the economy rendering them price-incompetitive in the international market. This overwhelming withholdingisation of the economic system, it is argued, has been brought about by a numb state continually operating under, using a Freudian framework, the “pleasure principle” instead of the “reality principle” with political governments complacently choosing to continue harvesting quick bucks into the exchequer, pushing the extractive system into a total disarray, the society into burgeoning civil strife, and the economy to the Dutch Disease effect.

Diversification in resource-rich Africa, 1999–2019

We survey the performance of Sub-Saharan Africa's resource-dependent economies from 1999 to 2019, a period covering the commodity price supercycle, which generated enormous rents for natural resource producers. We show that despite high overall growth rates, these states failed to convert their windfalls into broader forms of development: their economies diversified more slowly than resource-poor countries in Sub-Saharan Africa; their economies became less complex; their low institutional quality regressed further; and they achieved slower progress on human development than their resource-poor counterparts. Case studies of the top three diversifiers—Botswana, Zambia, and Nigeria—underscore the challenges of diversification. We suggest two broad reasons for these patterns. First, economic diversification, especially export diversification, is intrinsically difficult for low-and-middle income resource-dependent countries, due to both Dutch Disease effects and the isolated product spaces of the oil, gas, and minerals sectors. Second, diversification in resource-dependent states is sensitive to institutional quality, yet institutional quality is sticky and typically constrained by political interests that are hostile to reforms. This implies that the development challenges of oil, gas, and mineral dependent states over the coming decades will be significant and difficult to surmount. We suggest a more modest set of goals focused on diversifying into related activities in the extractives value chain and unrelated sectors in the domestic economy, as well as narrowly-focused efforts to boost non-resource export industries.

Threshold Impact of Remittances on Real Exchange Rates for WAEMU: A Panel Smooth Transition Regression Approach

This paper explores the nonlinear relationship between workers’ remittances and real effective exchange rates for West African Economic and Monetary Union (WAEMU) member countries using the panel smooth transition regression (PSTR). The PSTR was estimated with one transition function and one location parameter as dictated by the diagnostic tests. The diagnostic tests reveal that the relationship between workers’ remittances and real effective rates is nonlinear. The estimated threshold value is 3.07%. The results reveal that increases in workers’ remittances have a depreciating effect on real effective exchange rates in regime one, associated with threshold value of less than 3.07%. However, in the second regime when the threshold value is greater than or equal to 3.07%, increases in workers remittances have an appreciating impact on real effective exchange rates. These results substantiate that the relationship between workers’ remittances and real effective exchange rates is asymmetric and as such should be modeled accordingly. Above all, the results confirm the presence of Dutch disease effect in the second regime where the estimated coefficient on workers’ remittances is negative and statistically significant. However, there is no evidence of Dutch disease effect in the first regime where the regression coefficient on workers remittances is positive and also statistically significant. Policy implications are discussed.

The threshold effect of export sophistication on natural resources-trade diversification nexus

This study is an investigation into the influence of export sophistication on the complex nonlinear relationship between natural resources and trade diversification. It aims to explore if export sophistication’s threshold value affects the relationship between natural resources and trade diversification. A panel data of 106 nations was collected for the period of 2000–2018. This study develops its dynamic panel threshold model estimated with the difference GMM model. Our results reveal that natural resources and trade diversification have an inverse U-shaped relationship which is mediated by export sophistication. It implies that abundant natural resources, which give access to various markets, might assist trade diversification in nations with low export sophistication. However, in highly developed economies, resource wealth may prevent trade diversification since horizontal specialization patterns result in high prices, restricting market accessibility. The results of the study also explain the complex interactions between resources abundance, export sophistication, and trade diversification and offer critical insights for effective management of natural resources in emerging and industrialized economies. The study confirms the “resource curse” and the Dutch Disease effect, which demonstrates the means to deal with economic issues through the export sophistication. The research makes useful contribution to the existing literature on economic development and resource management by adding the dynamic threshold model and enhancing the robustness to the existing understanding on the issue.

An empirical analysis of premature deindustrialization in latecomer developing countries

The purpose of this study is to investigate the phenomenon of premature deindustrialization among latecomer economies in developing countries across the globe. This study applies a fixed effect model based on panel data as a methodology. The main findings and conclusions of this study are as follows: First, the fixed effect model based on panel data, which was used as a baseline analysis for looking at the link between manufacturing and income using the latecomer index, found that developing economies that joined the global economy after 1990 were deindustrializing too quickly. Second, from a geographical perspective, the acceleration of premature deindustrialization was confirmed in Latin America and some areas of Africa. Third, the quantile regression, which was used to test how stable the results of the fixed effect model estimation were, found that developing economies were deindustrializing too soon. Finally, alternative estimations demonstrated that partaking in global value chains (GVC) facilitated industrialization, whereas natural resource abundance prevented it. In terms of practical implications, GVC participation can be a good way for latecomer in developing economies to avoid premature deindustrialization. Resource-rich economies could keep the Dutch disease effect from speeding up premature deindustrialization by putting their resource revenues to productive uses, like building infrastructure.

Foreign aid, debt interest repayments and Dutch disease effects in a real exchange rate model for African countries

The international competitiveness of developing countries is integral to their economic development; hence understanding the main determinants of the real exchange rate is important. The empirical literature supports the Dutch disease hypothesis that foreign aid inflows significantly contribute to a real appreciation of African currencies, but these studies do not account for the downward pressure on the exchange rate from foreign currency payments. Using a panel of sub-Saharan African countries from 1980 to 2017, we test the hypothesis that the real exchange rate appreciation from aid inflows is moderated by interest repayments on external debt. Our findings suggest that one-third of the Dutch disease effect of aid inflows on the real exchange rate is offset by external debt interest repayments. These findings are important in showing that countries with external debt servicing obligations can mitigate the Dutch disease effect of aid inflows on competitiveness.

Interrelationships between Tourist Arrivals, Exchange Rate, Inflation, and Economic Growth: Empirical Evidence for Türkiye

Touristic activities have become essential for sustainable development associated with countries' prosperity and mobility opportunities. These activities may be affected by the exchange rate, economic growth, and general price movements, and these variables may also be affected by tourism activities. This study analyzes the relationships between tourist arrivals, economic growth, inflation, and exchange rate for Türkiye taking the country's geopolitical risk as exogenous, using monthly data over 2008-2020 and a Vector Error Correction modelling approach. The results indicate favorable short-run and long-run impacts of tourist arrivals on economic growth and confirm the validity of the tourism-led growth hypothesis for Türkiye. Toda Yamamoto causality tests show unidirectional causality from economic growth to inflation and exchange rate fluctuations and from the exchange rate to inflation. Therefore, results do not show evidence of tourism’s Dutch disease effect. Improving the quality of tourism-related services and marketing is vital for revenue increase and, thus, economic growth.

Tourism and COVID-19: An economy-wide assessment

The promotion of domestic tourism is widely identified as a promising recovery measure to revive tourism economies severely affected by the COVID-19 pandemic. The paper intends to estimate the economy-wide impacts of a hypothetical scenario of domestic tourism promotion in a small, emerging economy with heavy reliance on international tourism. The estimated impacts are compared with the economy-wide negative impacts of the pandemic via domestic and international tourism, to understand the potential level of compensation of domestic tourism promotion. The industry-level analysis indicates Dutch disease effects due to the decline in international tourism. A hypothetical boom in domestic tourism benefits non-tradable sectors to a significant level. Aggregate level analysis indicates a potential for economic gains through domestic tourism promotion, though such gains are inadequate to fully offset the foregone economic benefits due to loss in international tourism.

Does the expansion of local government debt affect the export quality?

AbstractImproving the quality of its exports is an important way for China to develop high‐quality foreign trade. It is of greatest academic value and policy significance to study the factors that restrict the export quality of enterprises. This paper empirically discusses the impact of local government debt expansion on export quality as well as its transmission mechanism, using microdata from Chinese enterprises. According to research findings, the acquisition of debt negatively affects enterprises in several ways. First, the expansion of local government debt has a negative impact on the export quality of enterprises. Second, local government debt affects export quality through financial constraints and the Dutch disease effect. Third, local government debt impact on export quality reflects significant heterogeneity in terms of debt types and characteristics of regional economics.

Impact of oil price and oil production on inflation in the CEMAC

There are different channels through which variations in international crude oil prices translate into changes in net-oil exporting countries' domestic prices. This article identifies two of these causal mechanisms, namely the pass-through effect and the Dutch disease effect. It intends to disentangle these two effects in the five oil producers of the Central African Economic and Monetary Community: Cameroon, the Republic of Congo, Chad, Equatorial Guinea, and Gabon. It also investigates the heterogeneity across countries in the face of international oil price and domestic oil production shocks based on a multiple time-series strategy covering the period 1995–2019. Applying Dynamic Ordinary Least Squares and Autoregressive Distributed Lag models, it concludes to the presence of a pass-through effect in Cameroon, Chad, and the Republic of Congo and of a Dutch disease effect in Equatorial Guinea. This contributes to the understanding of the relationships between international commodity prices and domestic consumer price variations but can also help policymakers in the CEMAC by assessing the vulnerability of its members toward external shocks.

Deindustrialisation in post-Soviet economies: premature deindustrialisation, Dutch disease, human capital, and institutions

ABSTRACT This study examines deindustrialisation in 15 post-Soviet economies by investigating the country-specific fixed effect in the relationships among manufacturing, population, and income and the factors contributing to deindustrialisation in terms of the premature deindustrialisation hypothesis. The fixed-effect estimation suggests deindustrialisation in the ten middle-income post-Soviet countries due to their comparative disadvantages in manufacturing as the overall contributor, with the lack of human capital, the Dutch Disease effect (mainly in Azerbaijan, Kazakhstan, the Russian Federation, and Uzbekistan), and immature institutions (mainly in Kyrgyz, Tajikistan, Ukraine, and Uzbekistan) as sub-factors that explain deindustrialisation in these countries based on factor analyses.

Natural Resource Funds: Their Objectives and Effectiveness

This study aims to examine the effectiveness of natural resource funds in resource-rich countries according to funds’ objectives via an econometric method using panel data (ordinary least squares estimator with fixed-effect model and Poisson pseudo-maximum likelihood estimator). The main contribution of this study is demonstrating fund-specific evaluation. To this end, it classifies funds into three types based on their objectives—stabilization, investment, and savings funds—and evaluates the effectiveness of each fund type by each criterion corresponding to an objective. The econometric estimations identify the effectiveness of stabilization funds in reducing the volatility of government expenditure and the primary balance, as well as the effectiveness of investment funds in increasing investment rates. They also confirm the facilitation of funds’ effectiveness under a combination of funds’ operations and high governance. The econometric analysis also shows that the operation of stabilization funds reduces the volatility of government expenditure by 13.6%, and their operation under high governance reduces it by 33.2%; meanwhile, the operation of investment funds increases the investment rate by 9.8%, and their operation with high governance raises it by 46.8%. Their practical implications are that the fiscal smoothing under stabilization funds provides a counter-cyclical buffer to mitigate commodity price shocks, thereby contributing to macroeconomic stabilization, and that the increase in investment rates under investment funds alleviates the Dutch disease effect, thereby sustaining economic growth.

Do Migrant's Remittance Inflow Affects the Dutch Disease: Evidence from Indonesia

Purpose: Remittances have grown in measurement and importance. While such inflows can improve economic growth, they may additionally also reason domestic foreign money to respect and hurt exports – an aspect of impact generally referred to as the Dutch disease. Statistics exhibit that remittances influx to Indonesia grew from 1% of GDP in 1984 to over 9% of GDP in 2020. Theoretically, such a massive influx of overseas foreign money into an economy may lead to Dutch diseases. Methodology: For this purpose, they learn about employing the Autoregressive Distributed Lag Model (ARDL) to observe the impact of migrant remittances on the actual fantastic exchange charge spanning the duration from 1984 to 2020. Findings: In the long run, they find out about finds an effective relationship between migrants’ remittances and the real high-quality change rate, which means that evidence of Dutch Disease risk in Indonesia. This grasp of the Indonesia rupiah relative to different competing countries encourages import and discourages export, leading to the Dutch disease effect. Originality/Value: This study, therefore, investigated whether the large inflow of remittances into the economic system reasons Dutch disease.

Foreign Aid and Dutch Disease: The Case of Vietnam

Abstract This study examines whether foreign aid from 1986 to 2019 caused the Dutch disease effect in Vietnam using a VAR model and Granger causality test. In this context, “Dutch disease” refers to the weakening of manufacturing processes as a consequence of the appreciation of a local currency due to capital inflow. Since foreign aid is considered a type of capital inflow, it is among the reasons for the appreciation of a local currency, which may offset the impact of foreign aid on economic growth. Although Vietnam experienced rapid economic growth, along with a large amount of foreign aid and appreciation in the real exchange rate, after Doi Moi (economic reform) in 1986, few studies have yet been conducted. The estimation results show that foreign aid does not cause an appreciation of the local currency in Vietnam. Based on this result, the Dutch disease did not occur due to foreign aid in Vietnam. JEL classification numbers: F35, O53. Keywords: Foreign Aid, Dutch Disease, Vietnam.

Effect of Remittance Inflows on External Debt in Developing Countries

This paper analyzes the effect of remittance inflows on external debt in developing countries, by identifying international reserves as a potential transmission channel. Using panel data over the period 1970–2017 and covering 50 low-and middle-income countries worldwide, we find a positive and significant effect of remittance inflows on the external debt-to-GDP ratio. We also find a negative and significant effect of international reserves on external debt. After controlling for international reserves, the effect of remittance inflows on external debt increases; it remains positive and significant. The results suggest that the role of international reserves as a self-insurance mechanism, and the Dutch disease effect related to remittance inflows are at play. In addition, we find negative and significant effects of economic growth and savings-investment gap on external debt. We also find positive and significant effects of the nominal exchange rate and the United States lending interest rate on external debt. We discuss the policy implications of these findings, while highlighting factors that policymakers should focus on for containing external debt in developing countries in the post-COVID-19.

Sovereign Wealth Funds in Theory and Practice

Are natural resources a curse or a blessing? The answer may depend on how natural wealth is managed. By transforming a temporary windfall into a permanent stock in the form of a sovereign wealth fund, resource-rich economies can avoid volatility and Dutch disease effects, save for future generations, and invest locally. We review the theory behind these resource funds and explore the empirical evidence for their success. Our review is complemented by case studies that highlight some of the more nuanced features, behavior, and effects of resource funds. While the theoretical research highlights the situational success of funds, empirical examinations are minimal. We discuss possible reasons for this gap in the literature and, in doing so, highlight some of the challenges associated with empirical research in this area and discuss possible paths forward.

Real exchange rates and remittance inflows in Jamaica

Large remittance inflows (remittances) can have several positive economic impacts, but they can also lead to real exchange rate appreciation and a loss of international competitiveness for recipient countries, or the Dutch disease effect of remittances. Using Jamaican data from 1977 to 2019, we test for the existence of this effect. After applying autoregressive bounds and Granger causality testing, we arrive at three findings. First, there is a long run cointegrating relationship running from remittances to the real exchange rate, where 64% of any perturbation from this relationship is corrected within one year. Second, we find that a 1% increase in remittances leads to a 0.53% appreciation of the real exchange rate in the long run. The Dutch disease effect exists in Jamaica. Third, consistent with the long run results, we find that remittances Granger cause the real exchange rate in the short run. An important policy implication of our findings is that the Jamaican government should channelize remittances to capital investment in the tradeable sector, while focusing on improving trade competitiveness to compensate for the deterioration of the country's terms of trade due to remittances’ impact on the real exchange rate.

REVISITING THE ROLE OF THE OIL CURSE AND ITS TRANSMISSION CHANNELS IN SHAPING PETROSTATES’ GROWTH: AN EVIDENCE FROM A QUANTILE REGRESSION

This paper aims to uncover the oil curse by presenting the distinctive characteristics of petrostates. Furthermore, it also clusters the countries to determine the mechanisms of oil resources by the importance of each transmission channel. Fixed and random effect models are performed, coupled with quantile regression. The results are threefold. First, oil abundance is favorable for economic growth. Second, oil dependence indirectly hinders growth by transmission mechanisms: in petrostates, the effect of indirect channel is the greatest by inhibiting human capital, the Dutch disease effect, which cripples the economic growth and by the increase in government intervention; and the institution effect turns to be positive. However, in non-petrostates, the greatest impact is experienced by different indirect channels. This study has further deepened our perception of the “oil curse” hypothesis and its transmission channels. Transmission channels determine whether natural resources are a curse or a blessing.

Effect of Tourism on Irrational Industrialization Causing Dutch Disease

This paper discuss about the effect of tourism on irrational industrialization causing Dutch Disease. We use regression coefficients of the SYS-GMM regression method then analyze the industrial structure effects of tourism development of eight (8) COMESA countries members during the period of 2003 to 2017, applying panel data approach. The result demonstrates that Dutch disease effect are significant and the temporal and spatial differences are obvious. This brings us to conclude that Tourism sector needs support and directive from the government, and decision maker ,they should seek for what help the Tourism to avoid any anomaly in the economy. Keywords: Tourism, COMESA countries, Dutch disease DOI: 10.7176/JESD/13-6-06 Publication date: March 31 st 2022