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The Implications of Natural Resource Exports for Nonresource Trade

Listed author(s):
  • Torfinn Harding
  • Anthony J Venables

Foreign exchange windfalls such as those from natural resource revenues change nonresource exports, imports, and the capital account. The paper studies the balance between these responses and shows that the response to $1 of resource revenue is, for our preferred estimates, to decrease nonresource exports by 74 cents and increase imports by 23 cents, implying a negligible effect on foreign savings. The negative per $1 impact on exports is larger for manufactures than for other sectors, and particularly large for internationally mobile manufacturing sectors. Although standard Dutch disease analysis points to contraction of the tradable sector as a whole, division into nonresource exports and imports is important if, as suggested by much development literature, a higher share of exports to GDP is associated with faster growth. The large negative impact of resources on these exports points to the difficulty resource-rich economies face in diversifying their exports.

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Article provided by Palgrave Macmillan & International Monetary Fund in its journal IMF Economic Review.

Volume (Year): 64 (2016)
Issue (Month): 2 (June)
Pages: 268-302

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Handle: RePEc:pal:imfecr:v:64:y:2016:i:2:p:268-302
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