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Oil boom, exchange rate and sectoral output: An empirical analysis of Dutch disease in oil-rich countries

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  • Alssadek, Marwan
  • Benhin, James

Abstract

This paper examines the Dutch disease in a global sample of 36 oil-rich developed and developing countries for the period 1970 to 2016. It also examines the theory comprehensively by considering the two Dutch disease intermediate effects: spending and resource movement. Using panel data fixed effect with Driscoll-Kraay standard errors estimation approach, our results show that an oil boom causes appreciation in the real exchange rate and a fall in sectoral output, which is consistent with the theory. However, there is significant difference in the effects of oil boom on the real exchange rate and sectoral output among sub-regional groupings, possibly because of differences in the extent of institutional quality and economic policy. The implications of these results are that policy makers of countries affected by Dutch disease should improve institutional quality, minimise real exchange rate appreciation and promote domestic investment in the manufacturing and agriculture sectors. These are necessarily conditions to escape the Dutch disease problem, which hinders economic growth and development.

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  • Alssadek, Marwan & Benhin, James, 2021. "Oil boom, exchange rate and sectoral output: An empirical analysis of Dutch disease in oil-rich countries," Resources Policy, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:jrpoli:v:74:y:2021:i:c:s0301420721003718
    DOI: 10.1016/j.resourpol.2021.102362
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    More about this item

    Keywords

    Dutch disease; Oil boom; Cross-sectional dependence; Fixed effect with driscoll and kraay standard errors;
    All these keywords.

    JEL classification:

    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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