Dutch Disease, Resource Curse and Development*

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Limitations, Shortcomings, Criticisms: DD • Although standard model captures correctly the key problem of resource booms, it suffers from too strong assumptions which obfuscate reality • To use the model for empirical analysis, money and currencies must be included • Transposing the basic features of the model from a barter economy to a monetary economy opens the perspective to mitigate or cure the disease with macroeconomic, especially exchange rate policy • Inflation, monetary and exchange rate policy should be included • … and also international capital mobility incl. saving the windfalls abroad • DD and RC can be understood in a Ricardian perspective: natural resources become new comparative advantage that crowds out other traditional sectors UNCTAD Division on Technology and Logistics - Knowledge Sharing, Training and Capacity Development Branch 16
Limitations, Shortcomings, Criticisms: RC • Windfall boom phases can increase the wealth of resource-rich countries considerably – booms don‟t look like disease or a curse … but development of employment and man-made wealth outside the boom sector is indeed hindered • Strong inflation due to spending effect is biggest risk which is not reflected in standard model • Other deficiency of the model: income distribution not addressed; rentier economies are mostly not “normal” market economies – strong financial role of state which receives big parts of the rents • The long-run disease is difficult to diagnose with regard to the initial causes and the subsequent additional causes that eventually lead to vicious circles which corroborate the disease. • Governments and central banks often try to mitigate too strong appreciations or depreciations - the more successful the attenuation is, the less visible is the UNCTAD Division on Technology and Logistics - Knowledge Sharing, Training and Capacity Development Branch 17
Page 1 and 2: *based on Teaching Material on “D
Page 3 and 4: 1. Introduction • Dutch Disease (
Page 5 and 6: Focus on Institutions and “Good G
Page 7 and 8: Dutch Disease: The Standard Model I
Page 9 and 10: Dutch Disease: The Standard Model I
Page 11 and 12: Resource Curse I • Sachs/Warner (
Page 13 and 14: Resource Curse III Figure 3: Growth
Page 15: 4. DEBATES ON STANDARD THEORIES: LI
Page 19 and 20: Empirical Evidence for DD and RC I
Page 21 and 22: Empirical evidence III • Oil boom
Page 23 and 24: % of GDP Empirical Evidence for DD
Page 25 and 26: Nigeria, Iran, Algeria, Sambia, Sau
Page 27 and 28: Empirical evidence IX: External Sav
Page 29 and 30: Nigeria - Dutch disease, Resource C
Page 31 and 32: Venezuela - no growth despite oilab
Page 33 and 34: US$, p.c. index, 2005 = 100 Norway
Page 35 and 36: 6. COPING WITH DD AND RC : SEARCHIN
Page 37 and 38: Alternative Strategies for Resource
Page 39 and 40: 7. CONCLUSION AND OUTLOOK UNCTAD Di
Page 41 and 42: Conclusion and Outlook II • There

Dutch Disease, Resource Curse and Development*

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