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Adjustment and Structural Change under Supply Shocks

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  • Michael Bruno

Abstract

The resource boom effect and the input price effect of raw material price changes are analyzed within a two-period, two-sector (plus resource industry), open economy framework. Diagrammatic exposition is used to study the 'Dutch disease', and in particular the distinction between the short term wealth effects (causing a real appreciation and a movement of variable factors from tradable to non-tradable industries) and between the long-run effects on total investment, its sectoral allocation and its finance by foreign borrowing. The framework further enables analysis of the different allocational effects of temporary versus permanent raw material price increases, when the two sectors differ in material use. Also discussed are the effects of changes in the world interest rate on factor allocation and foreign borrowing as well as the allocational effects of government intervention in the case of temporary real wage rigidity.

Suggested Citation

  • Michael Bruno, 1981. "Adjustment and Structural Change under Supply Shocks," NBER Working Papers 0814, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0814
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    References listed on IDEAS

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    1. Razin, Assaf, 1984. "Capital movements, intersectoral resource shifts and the trade balance," European Economic Review, Elsevier, vol. 26(1-2), pages 135-152.
    2. Michael Bruno, 1981. "Raw Materials, Profits, and the Productivity Slowdown (Rev)," NBER Working Papers 0660, National Bureau of Economic Research, Inc.
    3. Mayer, Wolfgang, 1974. "Short-Run and Long-Run Equilibrium for a Small Open Economy," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 955-967, Sept./Oct.
    4. 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 825-848, December.
    5. repec:bla:scandj:v:84:y:1982:i:2:p:229-53 is not listed on IDEAS
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    2. Cologni, Alessandro & Manera, Matteo, 2011. "Exogenous Oil Shocks, Fiscal Policy and Sector Reallocations in Oil Producing Countries," Energy: Resources and Markets 115726, Fondazione Eni Enrico Mattei (FEEM).
    3. Cologni, Alessandro & Manera, Matteo, 2013. "Exogenous oil shocks, fiscal policies and sector reallocations in oil producing countries," Energy Economics, Elsevier, vol. 35(C), pages 42-57.

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