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Can natural resources revenue start industrialization? (A model for Dutch disease)

Author

Listed:
  • Saleh Ghavidel Doostkouei

    (Islamic Azad University)

  • Khosro Azizi

    (Islamic Azad University)

  • Abdolreza Talaneh

    (Islamic Azad University, Firoozkooh Branch)

Abstract

We present a model of Dutch disease in which revenue from natural resources is spent on the imports of intermediate and final goods. In the previous study of the Dutch disease model, the natural resources’ revenue is allocated only to the imports of final goods. We simulated Dutch disease according to Resource Movement Effect (RE) and Spending Effect (SE) in both primary and expanded models. The result shows that real appreciation is higher, and de-industrialization status is ambiguous if the revenue of natural resources is allocated to the imports of intermediate and final goods, and intermediate goods as an input in the production of the tradable sector. In other words, there is no guarantee that with the income of natural resources, a country will be industrialized. Real depreciation may occur if the natural resources revenue is invested in the non-tradable sector. The fluctuations of the real exchange rate in natural resource-rich countries are higher than in other countries when they are allocating revenue of natural resources to the imports of intermediate and final goods. This policy is more difficult for countries whose share of natural resources in GDP is more than 7%.

Suggested Citation

  • Saleh Ghavidel Doostkouei & Khosro Azizi & Abdolreza Talaneh, 2023. "Can natural resources revenue start industrialization? (A model for Dutch disease)," SN Business & Economics, Springer, vol. 3(1), pages 1-31, January.
    • Handle: RePEc:spr:snbeco:v:3:y:2023:i:1:d:10.1007_s43546-022-00379-z
    DOI: 10.1007/s43546-022-00379-z
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    More about this item

    Keywords

    Dutch disease; Natural resources booms; Industrialization;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • P28 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Natural Resources; Environment
    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

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