Dutch disease, informality, and employment intensity in Colombia

From the first half of the 2000s until 2014 the Colombian economy was under the influence of an oil and mining production and export boom that triggered the potential for Dutch Disease effects. As the boom has the potential to induce shifts in the sectorial composition of the economy, it may have significant effects on employment dynamics and on the evolution of employment intensity, especially when the informal sector is sizable. We study the potential effects of this boom, had it extended as forecasted by 2011. For this, we use a recursive dynamic computable general equilibrium model, calibrated to a 2011 Social Accounting Matrix of the Colombian economy, in which activities are differentiated in terms of their formal and informal components, and suitable details are included to account for the stream of income the government receives from the booming activities. We find that the resource shift and spending effects from the boom are sizeable, leading to a relative drop in exports in non-boom sectors and to shrinking output for most sectors of the economy, while employment in the formal sector and for skilled workers is favored. Furthermore, we find that the policy package designed by the Colombian government to face potential Dutch Disease effects on the economy has a limited impact on improving the resource shift and spending effects.