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Dutch Disease Scare in Kazakhstan: Is it real?

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  • Balazs Egert
  • Carol S. Leonard

Abstract

In this paper we explore the evidence that would establish that Dutch disease is at work in, or poses a threat to, the Kazakh economy. Assessing the mechanism by which fluctuations in the price of oil can damage non-oil manufacturing—and thus long-term growth prospects in an economy that relies heavily on oil production—we find that non-oil manufacturing has so far been spared the perverse effects of oil price increases from 1996 to 2005. The real exchange rate in the open sector has appreciated over the last couple of years, largely due to the appreciation of the nominal exchange rate. We analyze to what extent this appreciation is linked to movements in oil prices and oil revenues. Econometric evidence from the monetary model of the exchange rate and a variety of real exchange rate models show that the rise in the price of oil and in oil revenues might be linked to an appreciation of the U.S. dollar exchange rate of the oil and non-oil sectors. But appreciation is mainly limited to the real effective exchange rate for oil sector and is statistically insignificant for non-oil manufacturing.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1961.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_1961

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Cited by:
  1. Hasanov, Fakhri, 2010. "The impact of real oil price on real effective exchange rate: The case of Azerbaijan," MPRA Paper 33493, University Library of Munich, Germany.
  2. repec:onb:oenbwp:y:2008:i:2:b:1 is not listed on IDEAS
  3. Somayeh Mardaneh, 2012. "Inflation Dynamics in a Dutch Disease Economy," Discussion Papers in Economics 12/25, Department of Economics, University of Leicester.
  4. Oskenbayev, Yessengali & Yilmaz, Mesut & Abdulla, Kanat, 2013. "Resource concentration, institutional quality and the natural resource curse," Economic Systems, Elsevier, vol. 37(2), pages 254-270.
  5. Virginie Coudert & Cécile Couharde & Valérie Mignon, 2011. "Does Euro or Dollar Pegging Impact the Real Exchange Rate? The Case of Oil and Commodity Currencies," The World Economy, Wiley Blackwell, vol. 34(9), pages 1557-1592, 09.
  6. Hasanov, Fakhri, 2009. "Analyzing price level in a booming economy: the case of Azerbaijan," MPRA Paper 29555, University Library of Munich, Germany.

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