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Three Symptoms And A Cure: A Contribution To The Economics Of The Dutch Disease

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  • Herbertsson, Tryggvi Thor
  • Skuladottir, Marta
  • Zoega, Gylfi

Abstract

This paper presents a dynamic model that gives an account of some of the forms that the Dutch Disease can take through both product and labour markets. These involve an effect of primary sector output - through real wages and the level and volatility of real-exchange rates - on secondary sector employment, output, and investment. We then look at data from Iceland - which is probably the only OECD country that may have a serious problem of this sort - and look for evidence supporting our hypotheses. We find a clear effect of primary sector output and its volatility on real wages but not on the real exchange rate, defined as a ratio of the prices of traded and non-traded goods. Moreover, real wages are shown to impede output, investment and employment in the secondary sector.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2364.

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Date of creation: Jan 2000
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Handle: RePEc:cpr:ceprdp:2364

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Related research

Keywords: Dutch Disease; Exchange -Rate Volatility;

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Cited by:
  1. Frederick van der Ploeg & Steven Poelhekke, 2007. "Volatility, Financial Development and the Natural Resource Curse," Economics Working Papers ECO2007/36, European University Institute.
  2. Gylfason, Thorvaldur, 2001. "Nature, Power, and Growth," Scottish Journal of Political Economy, Scottish Economic Society, vol. 48(5), pages 558-88, November.
  3. Thorvaldur Gylfason & Gylfi Zoega, 2001. "Natural Resources and Economic Growth: The Role of Investment," EPRU Working Paper Series 01-02, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  4. Elissaios Papyrakis & Reyer Gerlagh, 2004. "Resource-Abundance and Economic Growth in the U.S," Working Papers 2004.62, Fondazione Eni Enrico Mattei.
  5. Gylfason, Thorvaldur, 2000. "Natural Resources, Education, and Economic Development," CEPR Discussion Papers 2594, C.E.P.R. Discussion Papers.
  6. Papyrakis, Elissaios & Gerlagh, Reyer, 2007. "Resource abundance and economic growth in the United States," European Economic Review, Elsevier, vol. 51(4), pages 1011-1039, May.

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