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Three Symptoms And A Cure: A Contribution To The Economics Of The Dutch Disease

Author

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  • Herbertsson, Tryggvi Thor
  • Skuladottir, Marta
  • Zoega, Gylfi

Abstract

This paper presents a dynamic model that gives an account of some of the forms that the Dutch Disease can take through both product and labour markets. These involve an effect of primary sector output - through real wages and the level and volatility of real-exchange rates - on secondary sector employment, output, and investment. We then look at data from Iceland - which is probably the only OECD country that may have a serious problem of this sort - and look for evidence supporting our hypotheses. We find a clear effect of primary sector output and its volatility on real wages but not on the real exchange rate, defined as a ratio of the prices of traded and non-traded goods. Moreover, real wages are shown to impede output, investment and employment in the secondary sector.

Suggested Citation

  • Herbertsson, Tryggvi Thor & Skuladottir, Marta & Zoega, Gylfi, 2000. "Three Symptoms And A Cure: A Contribution To The Economics Of The Dutch Disease," CEPR Discussion Papers 2364, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2364
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    Citations

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    Cited by:

    1. Frederick van der Ploeg & Steven Poelhekke, 2007. "Volatility, Financial Development and the Natural Resource Curse," Economics Working Papers ECO2007/36, European University Institute.
    2. Elissaios Papyrakis & Reyer Gerlagh, 2004. "Resource-Abundance and Economic Growth in the U.S," Working Papers 2004.62, Fondazione Eni Enrico Mattei.
    3. Gylfason, Thorvaldur, 2001. "Nature, Power, and Growth," Scottish Journal of Political Economy, Scottish Economic Society, vol. 48(5), pages 558-588, November.
    4. Gylfason, Thorvaldur, 2001. "Natural resources, education, and economic development," European Economic Review, Elsevier, vol. 45(4-6), pages 847-859, May.
    5. Thorvaldur Gylfason & Gylfi Zoega, 2006. "Natural Resources and Economic Growth: The Role of Investment," The World Economy, Wiley Blackwell, vol. 29(8), pages 1091-1115, August.
    6. Eliasson, Ludvik & Turnovsky, Stephen J., 2004. "Renewable resources in an endogenously growing economy: balanced growth and transitional dynamics," Journal of Environmental Economics and Management, Elsevier, vol. 48(3), pages 1018-1049, November.
    7. Guðmundsson, Björn Rúnar, 2015. "Financialisation and financial crisis in Iceland," IPE Working Papers 55/2015, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    8. Ewa Dabrowska & Joachim Zweynert, 2015. "Economic Ideas and Institutional Change: The Case of the Russian Stabilisation Fund," New Political Economy, Taylor & Francis Journals, vol. 20(4), pages 518-544, August.
    9. Papyrakis, Elissaios & Gerlagh, Reyer, 2007. "Resource abundance and economic growth in the United States," European Economic Review, Elsevier, vol. 51(4), pages 1011-1039, May.

    More about this item

    Keywords

    Dutch Disease; Exchange -Rate Volatility;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

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