We set out a model of a small open economy exporting oil and a traditional exportable in return for produced capital. The small open economy also has local production of a non-traded good. We first observe that the size of the traditional export sector declines with an exogenous increase in the country's oil stock. Strong Dutch disease (SDD) involves a net diminution in produced capital in use in the small open economy after the oil discovery shock. SDD turns on the exportable sector being relatively capital intensive.
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Paper provided by Queen's University, Department of Economics in its series Working Papers with number
1163.
Find related papers by JEL classification: F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease) Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
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