Has Algeria Suffered from the Dutch Disease? Evidence from 1960-2016 Data

The Algerian economy is strongly dependent on oil exports. Following the 1986 oil counter-shock, Algeria has experienced a persistent decline of its manufacturing sector. Although it has benefited from high oil prices over the last decades and implemented a myriad of economic reforms, this country has failed to develop its manufacturing sector and diversify its economy. One of the main mechanisms through which fluctuations in oil prices can constitute an impediment to the development of the manufacturing sector, and hence to long-term growth, in an economy that heavily relies on a natural resource exports is referred to in the literature as the Dutch disease. This paper aims to test whether or not Algeria?s economy has suffered from the main symptoms of this syndrome by analyzing data covering more than half-a-century. More specifically, we use a 1960-2016 annual database to investigate two important implications of this phenomenon that occur following an oil boom, namely, the spending effect and the resource movement effect. We perform some simple tests of these signs of the Dutch disease using the Autoregressive-Distributed Lag (ARDL) approach while controlling for some other factors that could have led to similar economic symptoms. The results do not allow us to unambiguously claim that the Algerian economy has suffered from the Dutch disease over the period spanned by our data, which suggests further inquiry about the causes of the low degree of diversification of the Algerian economy.