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Does the Canadian economy suffer from Dutch Disease?

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  • Michel Beine
  • Charles Bos
  • Serge Coulombe

    () (CREA, University of Luxembourg)

Abstract

We argue that the failure to disentangle the evolution of the Canadian currency and energy and commodity prices from the US currency leads to potential wrong conclusions regarding the case of a Dutch disease in Canada. We propose a new approach aimed at extracting currency components and energy and commodity prices components from observed exchange rates and prices. Then, we analyze first the separate influence of commodity prices on the Canadian and the US currency component. Second, we estimate the separate impact of the two currency components on the shares of manufacturing employment in Canada. We show that 54 percent of the manufacturing employment loss due to exchange rate development between 2002 and 2007 are related to a Dutch disease phenomenon. The remaining 46 percent can be ascribed to the weakness of the US currency.

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Bibliographic Info

Paper provided by Center for Research in Economic Analysis, University of Luxembourg in its series CREA Discussion Paper Series with number 09-06.

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Date of creation: 2009
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Handle: RePEc:luc:wpaper:09-06

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References

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  1. Jean-Philippe Stijns, 2001. "Natural Resource Abundance And Economic Growth Revisited," Development and Comp Systems 0103001, EconWPA.
  2. Corden, W M, 1984. "Booming Sector and Dutch Disease Economics: Survey and Consolidation," Oxford Economic Papers, Oxford University Press, vol. 36(3), pages 359-80, November.
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  7. Mahieu, R.J. & Schotman, P., 1994. "Neglected common factors in exchange rate volatility," Open Access publications from Maastricht University urn:nbn:nl:ui:27-5923, Maastricht University.
  8. Papyrakis, E. & Gerlagh, R., 2004. "The resource curse hypothesis and its transmission channels," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3764006, Tilburg University.
  9. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  10. Michel Beine & Serge Coulombe, 2007. "Economic integration and the diversification of regional exports: evidence from the Canadian--U.S. Free Trade Agreement," Journal of Economic Geography, Oxford University Press, vol. 7(1), pages 93-111, January.
  11. Krugman, Paul, 1987. "The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher : Notes on trade in the presence of dynamic scale economies," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 41-55, October.
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Citations

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Cited by:
  1. Elissaios Papyrakis & Ohad Raveh, 2013. "An Empirical Analysis of a Regional Dutch Disease: The case of Canada," OxCarre Working Papers 106, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  2. Torfinn Harding & Anthony J Venables, 2013. "The Implications of Natural Resource Exports for Non-Resource Trade," OxCarre Working Papers 103, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  3. Wessel N. Vermeulen, 2011. "External income, De-industrialisation and Labour Mobility," CREA Discussion Paper Series 11-20, Center for Research in Economic Analysis, University of Luxembourg.
  4. Michel Beine & Serge Coulombe & Wessel N. Vermeulen, 2012. "Dutch Disease and the Mitigation Effect of Migration: Evidence from Canadian Provinces," CREA Discussion Paper Series 12-06, Center for Research in Economic Analysis, University of Luxembourg.

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