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Boom goes the price: Giant resource discoveries and real exchange rate appreciation

Author

Listed:
  • Torfinn Harding

    () (NHH Norwegian School of Economics)

  • Radoslaw Stefanski

    () (University of St Andrews)

  • Gerhard Toews

    () (University of Oxford)

Abstract

We estimate the effect of giant oil and gas discoveries on bilateral real exchange rates. A giant discovery with the value of 10% of a country's GDP appreciates the real exchange rate by 1.5% within 10 years following the discovery. The appreciation starts before production starts and the non-traded component of the real exchange rate drives the appreciation. Labor reallocates from the traded goods sector to the non-traded goods sector, leading to changes in labor productivity. These findings provide direct evidence on the channels central to the theories of the Dutch disease and the Balassa-Samuelson effect.

Suggested Citation

  • Torfinn Harding & Radoslaw Stefanski & Gerhard Toews, 2016. "Boom goes the price: Giant resource discoveries and real exchange rate appreciation," Discussion Paper Series, School of Economics and Finance 201608, School of Economics and Finance, University of St Andrews, revised 08 Feb 2020.
  • Handle: RePEc:san:wpecon:1608
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    Cited by:

    1. Rick Van der Ploeg & Fidel Perez-Sebastian & Ohad Raveh, 2019. "Oil Discoveries and Protectionism," Economics Series Working Papers 895, University of Oxford, Department of Economics.
    2. van der Ploeg, Frederick, 2019. "Macro policy responses to natural resource windfalls and the crash in commodity prices," Journal of International Money and Finance, Elsevier, vol. 96(C), pages 263-282.
    3. William Gruben, 2016. ", by Victor Menaldo," The International Trade Journal, Taylor & Francis Journals, vol. 30(5), pages 486-488, October.
    4. Girard, Victoire & Kudebayeva, Alma & Toews, Gerhard, 2020. "Inflated Expectations and Commodity Prices: Evidence from Kazakhstan," GLO Discussion Paper Series 469, Global Labor Organization (GLO).
    5. Roberto Iacono, 2018. "The Dutch disease revisited: absorption constraint and learning by doing," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 17(1), pages 61-85, March.
    6. James Cust & Torfinn Harding & Pierre-Louis Vézina, 2019. "Dutch Disease Resistance: Evidence from Indonesian Firms," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(6), pages 1205-1237.
    7. Cust,James Frederick & Mihalyi,David, 2017. "Evidence for a presource curse ? oil discoveries, elevated expectations, and growth disappointments," Policy Research Working Paper Series 8140, The World Bank.
    8. Güntner, Jochen H.F., 2019. "How do oil producers respond to giant oil field discoveries?," Energy Economics, Elsevier, vol. 80(C), pages 59-74.
    9. Christa N. Brunnschweiler & Steven Poelhekke, 2019. "Pushing One's Luck: Petroleum ownership and discoveries," University of East Anglia School of Economics Working Paper Series 2019-01, School of Economics, University of East Anglia, Norwich, UK..

    More about this item

    Keywords

    Real exchange rates; natural resource discoveries; Dutch disease; oil; Balassa-Samuelson effect;

    JEL classification:

    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

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