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Fiscal policy and Dutch disease

In this paper we revisit the Dutch disease paying particular attention to the role of specific factors of production and capital stock dynamics. The main insight is that if the natural resource rich windfall is substantial but not large enough for the country to become a rentier, capital goods must be produced at home and adjustment to natural resource windfall takes time. It takes time to build this home-grown capital. Specific factors are crucial to explain the dynamic responses of the real exchange rate, capital intensities and wages in response to a natural resource windfall. If a country is small and the windfall is large, it may be able to import capital and migrant labour in which case the Dutch disease can be avoided.

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File URL: http://hdl.handle.net/10.1007/s10368-011-0191-2
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Article provided by Springer in its journal International Economics and Economic Policy.

Volume (Year): 8 (2011)
Issue (Month): 2 (June)
Pages: 121-138

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Handle: RePEc:kap:iecepo:v:8:y:2011:i:2:p:121-138
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=111059

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  8. van Wijnbergen, Sweder J G, 1984. "The 'Dutch Disease': A Disease after All?," Economic Journal, Royal Economic Society, vol. 94(373), pages 41-55, March.
  9. Flemming, John S, 1982. " Comment on J. P. Neary and D. D. Purvis, "Sectoral Shocks in a Dependent Economy: Long-run Adjustment and Short-run Accommodation."," Scandinavian Journal of Economics, Wiley Blackwell, vol. 84(2), pages 255-57.
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  11. Torvik, Ragnar, 2001. "Learning by doing and the Dutch disease," European Economic Review, Elsevier, vol. 45(2), pages 285-306, February.
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