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Does the Canadian economy suffer from Dutch disease?

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  • Beine, Michel
  • Bos, Charles S.
  • Coulombe, Serge

Abstract

We argue that the failure to disentangle the evolution of the Canadian currency from the U.S. currency leads to potentially incorrect conclusions regarding the case of Dutch disease in Canada. We propose a new approach that is aimed at extracting both currency components and energy- and commodity-price components from observed exchange rates and prices. We first analyze the separate influence of commodity prices on the Canadian and the U.S. currency components. We then estimate the separate impact of the two currency components on the shares of manufacturing employment in Canada. We show that between 33 and 39 per cent of the manufacturing employment loss that was due to exchange rate developments between 2002 and 2007 is related to the Dutch disease phenomenon. The remaining proportion of the employment loss can be ascribed to the weakness of the U.S.

Suggested Citation

  • Beine, Michel & Bos, Charles S. & Coulombe, Serge, 2012. "Does the Canadian economy suffer from Dutch disease?," Resource and Energy Economics, Elsevier, vol. 34(4), pages 468-492.
  • Handle: RePEc:eee:resene:v:34:y:2012:i:4:p:468-492
    DOI: 10.1016/j.reseneeco.2012.05.002
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    Cited by:

    1. repec:bla:tvecsg:v:107:y:2016:i:5:p:552-566 is not listed on IDEAS
    2. Timothy W. Kelsey & Mark D. Partridge & Nancy E. White, 2016. "Unconventional Gas and Oil Development in the United States: Economic Experience and Policy Issues," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 38(2), pages 191-214.
    3. Brown, Jason, 2014. "Production of natural gas from shale in local economies: a resource blessing or curse?," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 1-29.
    4. repec:bla:reviec:v:25:y:2017:i:4:p:924-947 is not listed on IDEAS
    5. Pilar Poncela & Eva Senra & Lya Paola Sierra, 2017. "Long-term links between raw materials prices, real exchange rate and relative de-industrialization in a commodity-dependent economy: empirical evidence of “Dutch disease” in Colombia," Empirical Economics, Springer, vol. 52(2), pages 777-798, March.
    6. Mardi Dungey & Renee Fry-McKibbin & Verity Linehan, 2014. "Chinese resource demand and the natural resource supplier," Applied Economics, Taylor & Francis Journals, vol. 46(2), pages 167-178, January.
    7. Elissaios Papyrakis & Ohad Raveh, 2013. "An Empirical Analysis of a Regional Dutch Disease: The case of Canada," OxCarre Working Papers 106, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    8. repec:clg:wpaper:2015-15 is not listed on IDEAS
    9. Gerelmaa, Lkhagva & Kotani, Koji, 2016. "Further investigation of natural resources and economic growth: Do natural resources depress economic growth?," Resources Policy, Elsevier, vol. 50(C), pages 312-321.
    10. Michel Beine & Serge Coulombe & Wessel N. Vermeulen, 2015. "Dutch Disease and the Mitigation Effect of Migration: Evidence from Canadian Provinces," Economic Journal, Royal Economic Society, vol. 125(589), pages 1574-1615, December.
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    12. Wessel N. Vermeulen, 2011. "External income, De-industrialisation and Labour Mobility," CREA Discussion Paper Series 11-20, Center for Research in Economic Analysis, University of Luxembourg.
    13. Osama D. Sweidan, 2013. "The Effect of Exchange Rate on Exports and Imports: The Case of Jordan," The International Trade Journal, Taylor & Francis Journals, vol. 27(2), pages 156-172, June.
    14. Weber, Jeremy G., 2014. "A decade of natural gas development: The makings of a resource curse?," Resource and Energy Economics, Elsevier, vol. 37(C), pages 168-183.
    15. Jared C. Carbone & Kenneth J. McKenzie, 2015. "Going Dutch? The Impact of Oil Price Shocks on the Canadian Economy," Working Papers 2015-07, Colorado School of Mines, Division of Economics and Business.
    16. Wessel N. Vermeulen, 2013. "Resource Income and the Effect on Domestic Neighbours: A case study on Canadian Provinces," CREA Discussion Paper Series 13-05, Center for Research in Economic Analysis, University of Luxembourg.
    17. João Sousa Andrade & António Portugal Duarte, 2013. "The Dutch Disease in the Portuguese Economy," GEMF Working Papers 2013-05, GEMF, Faculty of Economics, University of Coimbra.
    18. Jean Dubé & Mario Polèse, 2015. "Resource Curse and Regional Development: Does Dutch Disease Apply to Local Economies? Evidence from Canada," Growth and Change, Wiley Blackwell, vol. 46(1), pages 38-57, March.
    19. Parcero, Osiris J. & Papyrakis, Elissaios, 2016. "Income inequality and the oil resource curse," Resource and Energy Economics, Elsevier, vol. 45(C), pages 159-177.
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    21. Ådne Cappelen & Torbjørn Eika, 2017. "Immigration and the Dutch disease. A counterfactual analysis of the Norwegian resource boom 2004-2013," Discussion Papers 860, Statistics Norway, Research Department.
    22. Takatsuka, Hajime & Zeng, Dao-Zhi & Zhao, Laixun, 2015. "Resource-based cities and the Dutch disease," Resource and Energy Economics, Elsevier, vol. 40(C), pages 57-84.

    More about this item

    Keywords

    Dutch disease; Natural resources; Exchange rates; Currency components; Bayesian econometrics;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada

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