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The Dutch Disease in the Portuguese Economy

Listed author(s):
  • João Sousa Andrade

    ()

    (Faculty of Economics University of Coimbra and GEMF, Portugal)

  • António Portugal Duarte

    ()

    (Faculty of Economics University of Coimbra and GEMF, Portugal)

The Portuguese economy has benefited from large amounts of European structural funds since the mid-eighties. At the same time, interest rates have decreased substantially, mainly due to a credibility phenomenon. The effects of those funds and the reduction of financial costs can be considered as analogous to the phenomenon known as Dutch Disease. That is to say, the inflow of financial transfers is also considered a curse. In order to eliminate this curse we must take into account the two effects associated with Dutch Disease: the resources effect and the demand effect. Portuguese public policies have not been appropriate and have not prevented the real exchange rate appreciation, contributing to a disaster in terms of GDP growth. After a descriptive analysis of some variables, we estimate a set of equations that take account of the direct and indirect effects of structural funds and financial costs on the economy where the effects on the real exchange rate play the major role.

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Paper provided by GEMF, Faculty of Economics, University of Coimbra in its series GEMF Working Papers with number 2013-05.

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Length: 38 pages
Date of creation: Jan 2013
Handle: RePEc:gmf:wpaper:2013-05.
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