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Boom Goes the Price: Giant Resource Discoveries and Real Exchange Rate Appreciation

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  • Torfinn Harding
  • Radoslaw Stefans
  • Gerhard Toews

Abstract

We estimate the effect of giant oil and gas discoveries on bilateral real exchange rates. A giant discovery with the value of 10% of a country’s GDP appreciates the real exchange rate by 1.5% within ten years following the discovery. The appreciation starts before production begins and the non-traded component of the real exchange rate drives the appreciation. Labour reallocates from the traded goods sector to the non-traded goods sector, leading to changes in labour productivity. These findings provide direct evidence on the channels central to the theories of the Dutch disease and the Balassa–Samuelson effect.

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  • Torfinn Harding & Radoslaw Stefans & Gerhard Toews, 2020. "Boom Goes the Price: Giant Resource Discoveries and Real Exchange Rate Appreciation," The Economic Journal, Royal Economic Society, vol. 130(630), pages 1715-1728.
    • Handle: RePEc:oup:econjl:v:130:y:2020:i:630:p:1715-1728.
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    Cited by:

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    2. Chiroleu-Assouline, Mireille & Fodha, Mouez & Kirat, Yassine, 2020. "Carbon curse in developed countries," Energy Economics, Elsevier, vol. 90(C).
    3. Roberto Iacono, 2018. "The Dutch disease revisited: absorption constraint and learning by doing," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 17(1), pages 61-85, March.
    4. Taufeeque Ahmad Siddiqui & Haseen Ahmed & Mohammad Naushad & Uzma Khan, 2023. "The Relationship between Oil Prices and Exchange Rate: A Systematic Literature Review," International Journal of Energy Economics and Policy, Econjournals, vol. 13(3), pages 566-578, May.
    5. van der Ploeg, Frederick, 2019. "Macro policy responses to natural resource windfalls and the crash in commodity prices," Journal of International Money and Finance, Elsevier, vol. 96(C), pages 263-282.
    6. James Cust & Torfinn Harding & Pierre-Louis Vézina, 2019. "Dutch Disease Resistance: Evidence from Indonesian Firms," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(6), pages 1205-1237.
    7. Güntner, Jochen H.F., 2019. "How do oil producers respond to giant oil field discoveries?," Energy Economics, Elsevier, vol. 80(C), pages 59-74.
    8. Regina Stéphanie Seri, 2021. "How giant discoveries of natural resources impact sovereign debt ratings in developing and emerging countries ?," CERDI Working papers hal-03144330, HAL.
    9. Adrien Desroziers & Yassine Kirat & Arsham Reisinezhad, 2023. "Carbon curse: As you extract, so you will burn," Working Papers 2023.09, FAERE - French Association of Environmental and Resource Economists.
    10. Doris Kwon & Olav Sorenson, 2023. "The Silicon Valley Syndrome," Entrepreneurship Theory and Practice, , vol. 47(2), pages 344-368, March.
    11. Nguyen, Minh-Hoang, 2021. "Resource curse - Wikipedia," OSF Preprints 36uyb, Center for Open Science.
    12. Mihalyi, David, 2020. "The Long Road to First Oil," MPRA Paper 103725, University Library of Munich, Germany.
    13. Konstantin P. Yurchenko & Irina N. Savelyeva, 2020. "Restoring Russia’s resource-dependent economy: From the Dutch Disease towards economic growth," Journal of New Economy, Ural State University of Economics, vol. 21(3), pages 28-47, October.
    14. Rick Van der Ploeg & Fidel Perez-Sebastian & Ohad Raveh, 2019. "Oil Discoveries and Protectionism," Economics Series Working Papers 895, University of Oxford, Department of Economics.
    15. Christopher Hartwell & Roman Horvath & Eva Horvathova & Olga Popova, 2022. "Natural resources and income inequality in developed countries: synthetic control method evidence," Empirical Economics, Springer, vol. 62(2), pages 297-338, February.
    16. Raveh, Ohad & Zhang, Yan, 2022. "The Long-Term Health Effects of Oil Discoveries: Evidence from China," MPRA Paper 114059, University Library of Munich, Germany.
    17. Rick Van der Ploeg, 2016. "Macro Policy Responses To Natural Resource Windfalls," OxCarre Working Papers 178, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    18. Cust, James & Harding, Torfinn & Krings, Hanna & Rivera-Ballesteros, Alexis, 2023. "Public governance versus corporate governance: Evidence from oil drilling in forests," Journal of Development Economics, Elsevier, vol. 163(C).
    19. Perez-Sebastian, Fidel & Raveh, Ohad & van der Ploeg, Frederick, 2021. "Oil discoveries and protectionism: Role of news effects," Journal of Environmental Economics and Management, Elsevier, vol. 107(C).
    20. Cust,James Frederick & Mihalyi,David, 2017. "Evidence for a presource curse ? oil discoveries, elevated expectations, and growth disappointments," Policy Research Working Paper Series 8140, The World Bank.
    21. Regina Stéphanie Seri, 2021. "How giant discoveries of natural resources impact sovereign debt ratings in developing and emerging countries ?," Working Papers hal-03144330, HAL.
    22. Raveh, Ohad & Zhang, Yan, 2024. "Giant Oil Discoveries and Long-Term Health Effects: Evidence from China," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 0(Preprint), January.

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    JEL classification:

    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

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