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Dealing with Dutch Disease

Author

Listed:
  • Milan Brahmbhatt
  • Otaviano Canuto
  • Ekaterina Vostroknutova

Abstract

This note looks at so-called Dutch disease, a phenomenon reflecting changes in the structure of production in the wake of a favorable shock (such as a large natural resource discovery, a rise in the international price of an exportable commodity, or the presence of sustained aid or capital inflows). Where the natural resources discovered are oil or minerals, a contraction or stagnation of manufacturing and agriculture could accompany the positive effects of the shock, according to the theory. The note considers channels through which such natural resource wealth can affect the economy. It also focuses on the development implications of Dutch disease, particularly the potential negative effects related to productivity dynamics and volatility; and concludes with a summary of possible policy responses, including the mix of fiscal, exchange rate, and structural reform policies.
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Suggested Citation

  • Milan Brahmbhatt & Otaviano Canuto & Ekaterina Vostroknutova, 2010. "Dealing with Dutch Disease," World Bank Publications - Reports 10174, The World Bank Group.
    • Handle: RePEc:wbk:wboper:10174
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    More about this item

    Keywords

    Macroeconomics and Economic Growth - Economic Conditions and Volatility Finance and Financial Sector Development - Debt Markets Private Sector Development - Emerging Markets Economic Theory and Research Macroeconomics and Economic Growth - Economic Stabilization;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

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