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Mineral-rich countries and dutch disease : understanding the macroeconomic implications of windfalls and the development prospects-the case of Equatorial Guinea

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  • Toto Same, Achille
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    Abstract

    Referring to the original context of Dutch Disease, the term refers to the fears of de-industrialization that gripped the Netherlands as a result of the appreciation of the Dutch currency that followed the discovery of natural gas deposits. Expansion of petroleum exports in the 1960s not only crowded out other exports, it actually reduced other exports disproportionately and fueled the fears of dire consequences for Dutch manufacturing. In the case of Equatorial Guinea, the secondary sector represents about 2 percent of the gross domestic product, manufacturing represents less than 1 percent, and oil represents more than 95 percent. The negative impact of the Dutch Disease in this context would be limited given the structure of the economy and on the contrary may even be a good thing because it fuels the structural transformational process of the economy, which is needed in Equatorial Guinea. This paper argues that the ongoing Dutch Disease is a natural and necessary reallocation of resources in the economy of Equatorial Guinea. The magnitude of negative macroeconomic consequences of the Dutch Disease depends on the country's economic structure and stage of development. In a country where the manufacturing sector barely exists or where the non-oil primary sector is structurally deficient, as has been the case of Equatorial Guinea, there is little to fear about the disease. The oil boom is a blessing, given that oil revenues when properly managed can play a special and critical role in overall economic development and poverty reduction in low-income countries. To promote good governance in the management of the country's oil wealth, the government may wish to adhere to clear standards of accountability and transparency; especially by complying with the Extractive Industries Transparency Initiative (EITI++).

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4595.

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    Date of creation: 01 Apr 2008
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    Handle: RePEc:wbk:wbrwps:4595

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    Keywords: Debt Markets; Economic Theory&Research; Banks&Banking Reform; Currencies and Exchange Rates;

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    1. H. Takizawa & E. H. Gardner & Kenichi Ueda, 2004. "Are Developing Countries Better off Spending their Oil Wealth Upfront?," IMF Working Papers, International Monetary Fund 04/141, International Monetary Fund.
    2. Sachs, Jeffrey D. & Warner, Andrew M., 1999. "The big push, natural resource booms and growth," Journal of Development Economics, Elsevier, Elsevier, vol. 59(1), pages 43-76, June.
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