Is Brazilian premature deindustrialization a case of Dutch disease?

The term “Dutch disease,” coined by The Economist (1977), describes how a commodity boom can overvalue a currency, undermine industrial competitiveness, and lead to deindustrialization. While traditionally linked to resource booms, an alternative theoretical view, advanced by Palma (2005) and the new developmentalist school, associates it in Latin America with post-1990s liberalizing reforms. This paper empirically tests whether Brazilian premature deindustrialization is driven by Dutch disease, a link not previously modeled within this latter theoretical framework. Using time series econometric models (1999-2024), we first examine whether the real exchange rate is influenced by Dutch disease variables. We then assess whether these factors explain Brazil’s premature deindustrialization, as hypothesized by Palma and new developmentalism. The findings support this interpretation, identifying Dutch disease − shaped by liberalizing reforms − as a key driver of Brazilian industrial decline. The paper closes with policy implications aimed at mitigating the structural impacts of Dutch disease. JEL Classification: O1; O47; O.