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Dutch Disease, Factor Mobility, and the Alberta Effect - The case of federations

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  • Ohad Raveh

Abstract

Do reduced costs of factor mobility mitigate Dutch Disease effects, to the extent that they are reversed? The case of federations provides an indication they do. We observe Resource Blessing effects at the federal-state level (within federations) yet rather Resource Curse ones at the federal level (between federations), and argue the difference in outcomes stems from the difference in factor mobility costs. Through a two-region tax competition model we show that with sufficiently low factor mobility costs a resourceboom triggers an Alberta Effect –where resource abundant regions exploit the fiscal advantage, provided by resource rents, to compete more aggressively in the inter-regionalcompetition over capital, and as a result attract vast amounts of capital– that mitigates, and possibly reverses, Dutch Disease symptoms, so that Resource Curse effects do not apply. Thus, this paper emphasizes the significance of the mitigating role of factor mobility in Dutch Disease theory, and presents a novel mechanism (Alberta Effect) through which this mitigation, and possible reversion, process occurs. The paper concludes with empirical evidence for the main implications of the model.

Suggested Citation

  • Ohad Raveh, 2013. "Dutch Disease, Factor Mobility, and the Alberta Effect - The case of federations," OxCarre Working Papers 100, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  • Handle: RePEc:oxf:oxcrwp:100
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    File URL: http://www.oxcarre.ox.ac.uk/files/OxCarreRP2012100.pdf
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    References listed on IDEAS

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    Cited by:

    1. Reingewertz, Yaniv, 2014. "Fiscal Decentralization - a Survey of the Empirical Literature," MPRA Paper 59889, University Library of Munich, Germany.
    2. Gerelmaa, Lkhagva & Kotani, Koji, 2016. "Further investigation of natural resources and economic growth: Do natural resources depress economic growth?," Resources Policy, Elsevier, vol. 50(C), pages 312-321.
    3. Fidel Perez-Sebastian & Ohad Raveh, 2017. "Federal Tax Policies, Congressional Voting, and the Fiscal Advantage of Natural Resources," OxCarre Working Papers 182, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    4. Perez-Sebastian, Fidel & Raveh, Ohad, 2016. "Natural resources, decentralization, and risk sharing: Can resource booms unify nations?," Journal of Development Economics, Elsevier, vol. 121(C), pages 38-55.
    5. Elissaios Papyrakis & Ohad Raveh, 2014. "An Empirical Analysis of a Regional Dutch Disease: The Case of Canada," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 58(2), pages 179-198, June.

    More about this item

    Keywords

    Natural Resources; Factor Mobility; Dutch Disease; Resource Curse; Tax Competition;

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

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