Dutch Disease and the Mitigation: Evidence from Canadian Provinces

This paper evaluates whether immigration can mitigate the Dutch disease effects associated with booms in natural resource sectors. We derive predicted changes in the size of the non-tradable sector from a small general-equilibrium model `a la Obstfeld-Rogoff. Using data for Canadian provinces, we find evidence that aggregate immigration mitigates the increase in the size of the non-tradable sector in booming regions. The mitigation effect is due mostly to interprovincial migration and temporary foreign workers. There is no evidence of such an effect for permanent international immigration. Interprovincial migration also results in a spreading effect of Dutch disease from booming to non-booming provinces.