Dutch Disease Research Articles

Research on Resource Curse Effect of Resource-Dependent Cities: Case Study of Qingyang, Jinchang and Baiyin in China

For a specific small-scale region with abundant resources, its copious resources tend to dictate the basic direction of its development, and may subsequently give rise to an industrial structure centered on the advantageous resources. This can give rise to an economic structure that lacks diversity, causing the economic development in the entire local region to fall into the dilemma of the resource curse. The present study conducts a case study from the perspective of small-scale regions, incorporating various types of resource-dependent cities in China, including Qingyang, Jinchang, and Baiyin, to interpret and analyze the resource curse effect by calculating a resource curse coefficient. Moreover, based on the regression model, the present study further discusses the empirical relations associated with the resource curse phenomenon. The results show that, regardless of whether a resource-dependent city is in the early, intermediate or late stage of its resource development, economic development is always plagued by the resource curse effect to a certain degree. Resource development cannot promote economic development, rather, it inhibits economic growth to some extent, resulting in an array of effects that are unfavorable to economic development, rendering the development unsustainable. For different types of resource-dependent cities, resource curse effect exhibits distinct characteristics. The resource curse effect is strongest for a resource-dependent city during an economic recession, is less severe during a development period, and is weakest during maturation. Resource development not only has a direct adverse impact on economic growth, but also often affects economic growth in multiple ways and on various levels through the Dutch disease effect, the crowding out effect, and the institution weakening effect. Until now, most results show that there is no obvious resource curse effect at the national and provincial level. The verification results of small-scale regions show that the resource curse effect at the city level still exists. In addition, the resource curse effect differs across different types of resource-dependent cities.

Factors hindering economic development: evidence from the MENA countries

PurposeDespite the possession of considerable natural, financial and human resources, the Middle East and North Africa (MENA) region suffers low economic growth rates, high unemployment rates, high poverty rates and high illiteracy rates. The purpose of this paper is to find out the factors that hinder the development of economic activities in this region.Design/methodology/approachThis study uses co-integration analysis and vector error correction model on a sample of 18 MENA countries, covering the period 2002–2016. It exploits gross domestic product (GDP) as a dependent variable, and public debt, trade balance, natural resources rents, importation of high technology, labour participation rate, military spending, population size, political instability and corruption as independent variables.FindingsThe paper finds that public borrowing, trade deficit, military expenditures, the low level of technological innovation, population, political turbulences and corruption, all hinder GDP in the long-run. Additionally, public debt, military spending and political instability obstruct GDP in the short run. The results also suggest the existence of Dutch diseases in both the short- and the long-run. On the other hand, labour market conditions do not seem to have any effect on the economic performance of the MENA countries.Originality/valueIn addition of examining an understudied sample of countries, this paper – unlike other studies on the MENA region that look at factors that boost economic growth – exploits factors that have possible negative impact on the economic situation of the region.

Double Dutch Disease - Emigration as a Human Resource Curse on the Sudan

Structural adjustment started in Sudan in 1978 but no real devaluation nor effective liberalisation was achieved. Declining exports and persistent inflation were not solely the result of the Sudan’s lax fiscal policies, distorted markets and structural weaknesses. Sudanese emigration to OPEC countries and the Dutch-disease effect of the emigrants’ hard-currency remittances had a greater impact; one which was reinforced by an inherited service-sector bias to the Sudanese state. These factors rendered powerless the standard prescriptions of devaluation and market liberalisation. An extensive debate over those policies between the IMF, Sudanese economists and others was in fact irrelevant. Even if Government had shown far greater capacity to implement a coherent policy of fiscal and economic reform, the loss of up to two thirds of the skilled labour force and remittances equivalent to 2% of GDP would still have driven the Real Exchange Rate up and productivity in tradeable sectors down. A standard model of booming sector economics is used to develop a theory for this special form of Dutch Disease and the way the effects were compounded by its direct impact on Government. This model may have lessons to teach for other countries which have experienced mass labour emigration.

Dutch Disease in Post-Soviet Oil Exporting Countries: Impact of Real Appreciation on De-industrialization

With the recent economic slowdown, there has been a growing concern that de-industrialization might result from resource abundance in the post-Soviet region. By using a comparative panel analysis of three countries of the post-Soviet region and 14 countries of selected oil exporters, this paper investigates whether real appreciation for the oil exporters contributed to de-industrialization in the region. We fail to find any evidence to support the claim that real appreciation caused de-industrialization in the region.

Prescribing for the tourism-induced Dutch disease: A DSGE analysis of subsidy policies

Tourism-induced Dutch disease can be particularly detrimental to small open economies due to deindustrialization and potential long-term welfare loss. This study adopts an innovative macroeconomic modelling tool, dynamic stochastic general equilibrium modelling, to investigate the effects of external inbound tourism booms on the national economic account of a small open economy. The results confirm the existence of Dutch disease, but tourism booms also bring welfare gains to the destination country. We further model the effects of two strategies to mitigate the Dutch disease by assuming that the government can tax the tourism sector and subsidize the manufacturing sector in two ways: production subsidies and investment subsidies. The results show that the effectiveness of production subsidies is very modest, while investment subsidies can almost completely overturn the Dutch disease. In terms of welfare, investment subsidies lower welfare gains in the very short term, but the positive effects persist over the longer term, which is different from the production subsidy case. Last, practical implications are provided.

Prescribing for the tourism-induced Dutch disease: A DSGE analysis of subsidy policies:

Tourism-induced Dutch disease can be particularly detrimental to small open economies due to deindustrialization and potential long-term welfare loss. This study adopts an innovative macroeconomic ...

Nizozemska bolest u Bolivarijanskoj Republici Venezueli

Ever since its independence, Venezuela has based its economy on the manufacturing and export of a single product. In the 19th century, those products were cocoa and coffee beans, which were replaced by oil in the 20th century. This led to the Dutch disease which harmed other sectors of the economy, so the often corrupt governments bought social peace with socialist policies and government spending. During the 1980s, the first significant plunge in oil prices in the 20th century forced the Venezuelan government to conduct liberal reforms in order to receive assistance from the International Monetary Fund. These led to a significant decline in the standard of living and GDP, as well as, mass protests. Due to the popular discontent, the 1998 presidential elections were won by Hugo Chavez, a former military officer and the leader of the failed coup, who used the rebound in oil prices to start socialist reforms and economic recovery. Expropriations of privately owned assets and price controls weakened the domestic economy and led to inflation, while the rise in government spending strained the public finances. The big drop in oil price in 2014 caused the collapse of Venezuelan economy as well as social and political crisis. The data used in making this paper is from the Venezuelan government and its departments and institutes, as well as from the United Nations, the World Bank, other organisations and Venezuelan and foreign newspapers and web portals.

Remittances in North and Central Asian Countries: Enhancing Development Potential

The article addresses the impacts of remittances in recipient countries in North and Central Asia, noting the high level of dependence of many countries of the subregion on remittances. While remittances are found to produce positive short-term benefits related to the reduction of transitory poverty, they also can contribute to negative impacts such as “Dutch Disease”, dollarization, public and private moral hazard. Few recipients make use of formal means of saving remittances, due to the lack of dedicated remittance-backed products, low levels of development of and trust in the financial sector, and lack of financial literacy among recipients of remittances. Measures to address this situation are proposed and assessed for their relevance to countries of the subregion.

Dutch Disease Symptoms in Mongolian Economy and Ways to reduce its Negative Effects

Mongolia has plenty of natural resources and comparatively few populations of 3 million, most of them are younger. It means Mongolia has a lot of opportunities to grow its economy quickly and compete with other countries by an economic growth. But, Mongolian economy has been stagnated in last few years since reaching the peak growth at 17.5 percent in 2011. We assume that the main reason for an economic stagnation caused by the government bad decisions not basing on the scientific research. The Dutch disease theory explains the relationship between increasing and declining specific sectors, which resulting in the currency appreciation. This paper aims to determine that the reason for economic difficulties and make some suggestion to prevent the worsening situation. As of Mongolia, it has been reflected by Dutch disease very badly, so need to find the way to dive into the right paths.

Good Mine, Bad Mine: Natural Resource Heterogeneity and Dutch Disease in Indonesia

We analyse the local effect of exogenous shocks to the value of mineral deposits at the district level in Indonesia using a panel of manufacturing plants. To the best of our knowledge, we are the first to model and estimate the effect of heterogeneity in natural resource extraction methods. We find that in areas where mineral extraction is relatively capital-intensive, mining booms cause virtually no upward pressure on manufacturing earnings per worker, and both producers of traded and local goods benefit from mining booms in terms of employment. In contrast, labour-intensive mining booms drive up local manufacturing wages such that producers of traded goods reduce employment. This source of heterogeneity helps to explain the mixed evidence for `Dutch disease' effects in the literature. In addition, we find no evidence that fiscal revenue sharing between sub-national districts leads to any spillovers.

Examining Dutch disease across Australian regions

AbstractThe recent mining boom represents one of the largest external shocks to the Australian economy in its post‐war history. Although most agree that it had a positive effect on the Australian economy as well as on people’s living standards, there is disagreement over the extent to which this boom has caused deindustrialisation and the so‐called Dutch disease in Australia. Our empirical findings support the presence of Dutch disease nationally for Australia using data for the period 1984–2013. Regionally, the results show that Dutch disease was concentrated mainly in the eastern and southern states of Australia—Victoria, Queensland, South Australia and Tasmania.

The effect of skilled emigration on real exchange rates through the wage channel

Building on an analytical model, we provide cross-country empirical evidence that net skilled emigration appreciates bilateral real exchange rates through the wage channel in source countries. Chains of causality in the presence of the Law of One Price run through the “spending effect” and the “resource allocation effect,” analogous to the remittance-based Dutch disease effect. A pricing-to-market model allows pass-through for both traded and nontraded prices when the Law of One Price is violated. The skilled emigration elasticity of real exchange rate is estimated to be in the range of between 0.6 and 0.8, with internal prices playing a dominant role. Alternative model specifications show robust outcomes.

Workers’ Remittances and the Dutch‐Disease Argument: Investigating the Relationship in Sub‐Saharan Africa

AbstractBased on the Salter‐Swan‐Corden‐Dornbusch framework, which argues that capital inflows may appreciate the official exchange rate by aggravating the effects of any previously existing domestic distortions, this paper examines the claim that workers’ remittances cause the Dutch disease in sub‐Saharan Africa (SSA). Specifically, the study investigates whether remittances cause financial overheating and spending effects. The study adopts the dynamic panel instrumental variable system generalized method of moment (IVSGMM). This study finds that although workers’ remittances cause financial overheating, they neither increase general spending nor appreciate the real exchange rate, thereby implying that workers’ remittances do not cause the Dutch disease in SSA from 1996 to 2013. These findings suggest that governments should establish diaspora incentive schemes so as to encourage remitters and recipient households’ to invest productively. Government efforts should be integral at improving the financial education for remitters and the recipient households so as to avoiding channelling overheating effects to spending effects and to the Dutch disease.

The Effects Of Remittance Inflows On Exchange Rates In Nigeria

The positive impact of remittances on development indicators of recipient countries is well documented in literature. Remittances have been a major source of economic support for dependents of migrant workers in their home countries. Nigeria receives the largest amount of remittances in Africa and the third among developing economies; receiving 21 Billion US Dollars in 2015. Large remittance inflows could however hurt the recipient economy when the flows are significant relative to the size of the recipient economy. With increasing remittance inflows relative to other capital inflows into Nigeria, remittances could have undesired outcomes, with the possibility of the exchange rates appreciation and a loss of competitiveness in the tradable sector. Using the Dynamic Ordinary Least Squares (DOLS) and data covering 1981 to 2014, this paper explores the empirical evidence regarding the impact of remittances on the real exchange rate in Nigeria. DOLS improves on OLS by coping with small sample and dynamic sources of bias to determine the long-run effect/coefficients of remittances and other variables on economic development. The DOLS also deals with the potential endogeneity problem of explanatory variables. Specifically, studying the nature of the variables, there is a possibility of reverse -causality running between the exchange rate and remittance, foreign direct investment. This situation therefore can raise the possibility of endogeneity. The potential of simultaneity bias, small sample bias and endogeneity among the regressors is dealt with by the inclusion of lagged and lead value of first differences of the regressors. In this design, the dynamic OLS estimator performed well relative to other asymptotically efficient estimators Our findings suggest that remittance inflows have been associated with a rise in the real exchange rate in Nigeria. The coefficient on remittances (REMI) is positive and statistically significant. Thus, high remittance inflows have been associated with a rise in the real exchange rate in Nigeria. This implies that high remittance inflows have exerted depreciating pressure on the country's currency. Thus, contrary to the Dutch disease proposition, high remittance inflows into Nigeria have not resulted in an overvalued exchange rate but a low-valued exchange rate.

Natural resource abundance, natural resource-oriented industry dependence, and economic growth: Evidence from the provincial level in China

The “natural resource curse” thesis states that having an abundant natural resource is not a favorable condition but is rather a limitation on economic growth. This study, which distinguishes the difference between natural resource abundance and natural resource-oriented industry dependence, proposes relevant hypotheses and conducts empirical tests using panel data at the provincial level in China. The research findings are as follows: first, an abundant natural resource is a favorable basis for economic growth. Second, the “natural resource curse” refers to a situation in which a region’s economic development is overly dependent on its natural resource-oriented industries, which leads to negative effects on both medium and long-term economic growth. Third, natural resource-oriented industry dependence indirectly inhibits economic growth through three transmission mechanisms: the crowding-out effect by inhibiting human capital, technology innovation and foreign investment; the Dutch disease effect, which cripples the development of manufacturing; and the institution weakening effect, reflected by the increase in government intervention. This study has further enriched our understanding of the “natural resource curse” thesis.

Analysis of the “Dutch Disease” effect and public financial management in Mongolian economy

Abstract. This paper aims to diagnose Mongolian economy on whether the economy has suffered from the Dutch Disease by applying a vector auto-regression model for the period from 1993 to 2016 under the current market-based regime including resource-booming times. From the outcomes of a VAR model estimation, it was found that there is a great possibility that Mongolian economy has been suffering from the Dutch Disease through the resource movement effect and the spending effect such that the boom in the mining sector has crowded out manufacturing activities; and that the boom in the mining sector has not contributed to, or even deteriorated the capital accumulation effect that alleviates the Dutch Disease. The strategic policy implications for the current Mongolian public financial management are that the part of the existing resource fund should be used for public investment to facilitate capital accumulation, specifically, for the projects on education, health and economic infrastructure to promote industrial diversification. Keywords. Dutch Disease, Public financial management, Mongolian economy; Vector auto-regression, Public investment. JEL. F43, L60, O53.

Remittances, Dutch Disease, and Manufacturing Growth in Developing Economies

AbstractRemittances have grown tremendously in magnitude and economic importance in the past four decades, providing economies with additional disposable incomes and even serving as buffers against economic downturns. It is thus but fitting to ask how remittances have impacted on growth, particularly on manufacturing growth. This note presents a simple model linking remittances and manufacturing growth via a ‘Dutch Disease’ channel. Using Blundell and Bond's (1998) system general method of moments on a panel dataset of 56 developing economies from 1992 to 2016, we verify that remittances adversely affect manufacturing growth in economies that experience high real appreciation rates. This result is robust to alternate specifications, such as the inclusion of financial development indicators, the expansion of the sample to include high‐income economies, and the use of different sample periods.

Agriculture, Aid, and Economic Growth in Africa.

How can foreign aid to agriculture support economic growth in Africa? This paper constructs a geographically indexed applied general equilibrium model that considers pathways through which aid might affect growth and structural transformation of labor markets in the context of soil nutrient variation, minimum subsistence consumption requirements, domestic transport costs, labor mobility, and constraints to self-financing of agricultural inputs.Using plausible parameters, the model is presented for Uganda as an illustrative case.We present three stylized scenarios to demonstrate the potential economy-wide impacts of both soil nutrient loss and replenishment, and how foreign aid can be targeted to support agricultural inputs that boost rural productivity and shift labor to boost real wages. One simulation shows how a temporary program of targeted official development assistance (ODA) for agriculture could generate, contrary to traditional Dutch disease concerns, an expansion in the primary tradable sector and positive permanent productivity and welfare effects, leading to a steady decline in the need for complementary ODA for budget support.

The impact of remittances on Sudan’s economic growth: does the exchange rate matter?

PurposeThe purpose of this paper is to investigate the presence of the Dutch disease hypothesis through examining the remittance-growth nexus using annual data for Sudan covering the period 1977-2015. The paper seeks to answer the following critical questions: what is the impact of remittance on Sudanese economy? How exchange rate influences the impact of remittance on growth? To what extent the impact of remittance on growth differs between the short and long run.Design/methodology/approachThe paper employs the autoregressive distributive lag (ARDL) technique because of its several advantages.FindingsThe ARDL results show evidence against the existence of such a hypothesis. More specifically, the results show that over time, due to the structured nature of the economy, remittances may affect economic growth negatively through several mechanisms including the depreciation rather than the appreciation of the exchange rate.Originality/valueAfter 2011 and the secession of South Sudan, Sudan lost more than 80 per cent of foreign exchange revenues which reflected in the sharp gap between the official rate and the parallel exchange rate equal to 150 per cent. To lessening this gap, the attention was given to expatriates to encourage them to transfer their remittances through official channels. Since remittance and exchange rate mechanism may affect growth positively or negatively, no study addressed this possibility. This is the first empirical study in this matter that considers both the temporary and the permanent impacts.

Cities built on copper – The impact of mining exports, wages and financial liquidity on urban economies in Chile

In small, open, mineral-export based economies, the economic growth of some medium sized cities is linked to cycles of boom and bust of export revenues due to commodity price volatility. We propose to explain urban economic growth in terms of real estate investment and private consumption as a function of commodity exports, wages and financial liquidity by employing “Dutch disease” and the “secondary circuit” of capital as theoretical references. Monthly data (2005–2015) from three mining-related cities are used in order to estimate these effects using linear regression models. Results show some general features like the outstanding influence of mining and other wages rather than export revenues on retail in most cities. Divergent results are observed regarding real estate investment being mining wages, financial liquidity, exports and also loans explanatory factors. Thus it could be shown that the main vehicle for spill-over from mining to urban economies is private household income and its distribution in space. Furthermore by calculating separate models for each city, important differences among contrasting types of cities appear. The importance of discussing the impacts of mining on economic development on a local, rather than on a national scale and of considering wages more systematically in the theoretical discussion of secondary and linkage effects of mining and in the design of public policy on commodity based development is evident.