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An Empirical Test of the Dutch Disease Hypothesis using a Gravity Model of Trade

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  • Jean-Philippe Stijns

    (the University of California at Berkeley)

Abstract

Although the core model of the Dutch Disease makes unambiguous predictions regarding the negative effect of a resource boom on a country’s manufacturing exports, the empirical literature that has followed has not clearly identified this effect. I attribute this to the failure of the existing literature to combine enough data to produce a sufficiently powerful and exogenous test. I will use the World Trade Database to systematically test this hypothesis in a gravity model of trade. World energy prices are used to bypass issues of endogeneity regarding primary exports. A one percent increase in world energy price is estimated to decrease a net energy exporter’s real manufacturing exports by almost half a percent. Similarly, after instrumentation, a one percent increase in an energy exporting country’s net energy exports is estimated decrease the country’s real manufacturing exports by 8 percent. The corresponding confidence intervals are tight and these results are shown to be quite robust.

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File URL: http://128.118.178.162/eps/it/papers/0305/0305001.pdf
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Bibliographic Info

Paper provided by EconWPA in its series International Trade with number 0305001.

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Length: 61 pages
Date of creation: 05 May 2003
Date of revision:
Handle: RePEc:wpa:wuwpit:0305001

Note: Type of Document - MS Word 2002; prepared on Dell Inspiron 3800; to print on any; pages: 61; figures: included. Accepted for presentation at the 2003 Congress of the EEA, Stockholm, August 20 to August 24. Comments highly appreciated.
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Web page: http://128.118.178.162

Related research

Keywords: Dutch disease; resource booms; gravity model; manufacturing exports; energy; trade; industry.;

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References

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Citations

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Cited by:
  1. Brunnschweiler, Christa N., 2008. "Cursing the Blessings? Natural Resource Abundance, Institutions, and Economic Growth," World Development, Elsevier, vol. 36(3), pages 399-419, March.
  2. Michele Ruta & Anthony J. Venables, 2012. "International Trade in Natural Resources: Practice and Policy," CESifo Working Paper Series 3778, CESifo Group Munich.
  3. Mauricio Mesquita Moreira, 2004. "Fear of China: Is there a future for manufacturing in Latin America?," Development and Comp Systems 0412008, EconWPA.
  4. Kutan, Ali M. & Wyzan, Michael L., 2005. "Explaining the real exchange rate in Kazakhstan, 1996-2003: Is Kazakhstan vulnerable to the Dutch disease?," Economic Systems, Elsevier, vol. 29(2), pages 242-255, June.
  5. Eun Kwan Choi, 2005. "Infrastructure Aid, Deindustrialization, and Welfare," IMF Working Papers 05/150, International Monetary Fund.
  6. Fofack, Hippolyte, 2009. "Africa and Arab Gulf states : divergent development paths and prospects for convergence," Policy Research Working Paper Series 5025, The World Bank.
  7. Mauricio Mesquita Moreira, 2006. "Trade and Integration Sector Note: Chile," IDB Publications 31178, Inter-American Development Bank.
  8. Maria-Dolores, Ramon & José Rodolfo, Morales, 2012. "The Natural Resource Curse: An Analysis of the Dutch Case based on Sectoral Economies of Scale," UMUFAE Economics Working Papers 26673, DIGITUM. Universidad de Murcia.
  9. Somayeh Mardaneh, 2012. "Inflation Dynamics in a Dutch Disease Economy," Discussion Papers in Economics 12/25, Department of Economics, University of Leicester.
  10. Christian Volpe Martincus & Sandra Milena Gómez, 2009. "Trade Policy and Export Diversification: What Should Colombia Expect from the FTA with the United States," IDB Publications 9292, Inter-American Development Bank.
  11. Elisabeth Beckmann & Jarko Fidrmuc, 2012. "Oil Price Shock and Structural Changes in CMEA Trade: Pouring Oil on Troubled Waters?," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 9(1), pages 31-49, April.
  12. Mahvash Saeed Qureshi, 2008. "Africa's Oil Abundance and External Competitiveness: Do Institutions Matter?," IMF Working Papers 08/172, International Monetary Fund.
  13. Nicolás Magud & Sebastián Sosa, 2013. "When And Why Worry About Real Exchange Rate Appreciation? The Missing Link Between Dutch Disease And Growth," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 4(02), pages 1350009-1-1.
  14. 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.
  15. Beckmann, Elisabeth & Fidrmuc, Jarko, 2009. "Oil Price Shock and Structural Changes in CMEA Trade," Discussion Papers in Economics 10963, University of Munich, Department of Economics.
  16. Dissou, Yazid, 2010. "Oil price shocks: Sectoral and dynamic adjustments in a small-open developed and oil-exporting economy," Energy Policy, Elsevier, vol. 38(1), pages 562-572, January.

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