Adjustment and Structural Change under Supply Shocks
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.
|Date of creation:||Dec 1981|
|Publication status:||published as Bruno, Michael. "Adjustment and Structural Change under Supply Shocks." Scandinavian Journal of Economics, Vol. 84, No. 2, (1982), pp. 199-221.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- Neary, J Peter & Purvis, Douglas D, 1982. " Sectoral Shocks in a Dependent Economy: Long-run Adjustment and Short-run Accommodation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 84(2), pages 229-253.
- 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.
- Razin, Assaf, 1984. "Capital movements, intersectoral resource shifts and the trade balance," European Economic Review, Elsevier, vol. 26(1-2), pages 135-152.
- 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.
- Michael Bruno, 1981. "Raw Materials, Profits, and the Productivity Slowdown (Rev)," NBER Working Papers 0660, National Bureau of Economic Research, Inc.
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