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Boom Goes the Price: Giant Resource Discoveries and Real Exchange Rate Appreciation

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Listed:
  • Torfinn Harding
  • Radoslaw Stefans
  • Gerhard Toews

Abstract

We estimate the effect of giant oil and gas discoveries on bilateral real exchange rates. A giant discovery with the value of 10% of a country’s GDP appreciates the real exchange rate by 1.5% within ten years following the discovery. The appreciation starts before production begins and the non-traded component of the real exchange rate drives the appreciation. Labour reallocates from the traded goods sector to the non-traded goods sector, leading to changes in labour productivity. These findings provide direct evidence on the channels central to the theories of the Dutch disease and the Balassa–Samuelson effect.

Suggested Citation

  • Torfinn Harding & Radoslaw Stefans & Gerhard Toews, 2020. "Boom Goes the Price: Giant Resource Discoveries and Real Exchange Rate Appreciation," The Economic Journal, Royal Economic Society, vol. 130(630), pages 1715-1728.
    • Handle: RePEc:oup:econjl:v:130:y:2020:i:630:p:1715-1728.
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    File URL: http://hdl.handle.net/10.1093/ej/ueaa016
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    JEL classification:

    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

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