Favorable External Shocks, Sectoral Adjustment and De-industrialization in Non-Oil Producing Economies
This paper examines the extent to which a favorable external shock such as the lower price of an intermediate input affects sectoral output and employment, the real exchange rate the wage in an economy where the input has no domestic production at all. The analytical framework is a real, short-run model based on a three-sector, three-factor small open economy. The effect of the shock on the variables concerned depends on the structural characteristics of production and consumption in the economy. In the normal case, the traded sectors initially favored by the shock expand the most among sectors while the other tradables suffer. The real exchange rate may appreciate along with the upsurge of wages. The shock can produce many other possible cases, however: The nontraded sector may grow at the expense of the traded sectors including the favored sector, thus leading to de-industrialization. An extreme case is that the positive effect on output and employment may occur only at the traded sectors that are initially unfavored by the shock. The shock may bring about real depreciation, or a decline in nominal wages, too.
|Date of creation:||10 Jun 1996|
|Date of revision:|
|Contact details of provider:|| Postal: F502 Haas, Berkeley CA 94720-1922|
Phone: (510) 642-1922
Fax: (510) 642-5018
Web page: http://www.escholarship.org/repec/iber_cider/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Burgess, David F., 1974. "Production theory and the derived demand for imports," Journal of International Economics, Elsevier, vol. 4(2), pages 103-117, May.
- Bruno, Michael, 1982. " Adjustment and Structural Change under Supply Shocks," Scandinavian Journal of Economics, Wiley Blackwell, vol. 84(2), pages 199-221.
- Jonathan Eaton, 1984.
"A Dynamic Specific-Factors Model of International Trade,"
NBER Working Papers
1479, National Bureau of Economic Research, Inc.
- Jonathan Eaton, 1987. "A Dynamic Specific-Factors Model of International Trade," Review of Economic Studies, Oxford University Press, vol. 54(2), pages 325-338.
- Michael Bruno & Jeffrey Sachs, 1982. "Energy and Resource Allocation: A Dynamic Model of the "Dutch Disease"," Review of Economic Studies, Oxford University Press, vol. 49(5), pages 845-859.
- Buffie, Edward F., 1984. "The macroeconomics of trade liberalization," Journal of International Economics, Elsevier, vol. 17(1-2), pages 121-137, August.
- Kamas, Linda, 1986. "Dutch disease economics and the Colombian export boom," World Development, Elsevier, vol. 14(9), pages 1177-1198, September.
- Buffie, Edward F., 1989. "Imported inputs, real wage rigidity and devaluation in the small open economy," European Economic Review, Elsevier, vol. 33(7), pages 1345-1361, September.
- Eastwood, R K & Venables, A J, 1982. "The Macroeconomic Implications of a Resource Discovery in an Open Economy," Economic Journal, Royal Economic Society, vol. 92(366), pages 285-99, June.
- Corden, W M, 1984. "Booming Sector and Dutch Disease Economics: Survey and Consolidation," Oxford Economic Papers, Oxford University Press, vol. 36(3), pages 359-80, November.
- Jorge E. Roldos, 1992. "A Dynamic Specific-Factors Model with Money," Canadian Journal of Economics, Canadian Economics Association, vol. 25(3), pages 729-42, August.
- Michael Bruno & Jeffrey Sachs, 1982. "Energy and Resource Allocation: A Dynamic Model of the "Dutch Disease"," NBER Working Papers 0852, National Bureau of Economic Research, Inc.
- Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-48, December.
- 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.
When requesting a correction, please mention this item's handle: RePEc:cdl:ciders:qt9hg553xj. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Schiff)
If references are entirely missing, you can add them using this form.