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An Empirical Test of the Dutch Disease Hypothesis using a Gravity Model of Trade

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  • Jean-Philippe Stijns

    (the University of California at Berkeley)

Abstract

Although the core model of the Dutch Disease makes unambiguous predictions regarding the negative effect of a resource boom on a country’s manufacturing exports, the empirical literature that has followed has not clearly identified this effect. I attribute this to the failure of the existing literature to combine enough data to produce a sufficiently powerful and exogenous test. I will use the World Trade Database to systematically test this hypothesis in a gravity model of trade. World energy prices are used to bypass issues of endogeneity regarding primary exports. A one percent increase in world energy price is estimated to decrease a net energy exporter’s real manufacturing exports by almost half a percent. Similarly, after instrumentation, a one percent increase in an energy exporting country’s net energy exports is estimated decrease the country’s real manufacturing exports by 8 percent. The corresponding confidence intervals are tight and these results are shown to be quite robust.

Suggested Citation

  • Jean-Philippe Stijns, 2003. "An Empirical Test of the Dutch Disease Hypothesis using a Gravity Model of Trade," International Trade 0305001, EconWPA.
  • Handle: RePEc:wpa:wuwpit:0305001 Note: Type of Document - MS Word 2002; prepared on Dell Inspiron 3800; to print on any; pages: 61; figures: included. Accepted for presentation at the 2003 Congress of the EEA, Stockholm, August 20 to August 24. Comments highly appreciated.
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    References listed on IDEAS

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    Cited by:

    1. Hattendorff, Christian, 2013. "The Natural Resource Curse Revisited: Is There a Financial Channel?," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79805, Verein für Socialpolitik / German Economic Association.
    2. Mesquita Moreira, Mauricio, 2007. "Fear of China: Is There a Future for Manufacturing in Latin America?," World Development, Elsevier, vol. 35(3), pages 355-376, March.
    3. Michele Ruta & Anthony J. Venables, 2012. "International Trade in Natural Resources: Practice and Policy," Annual Review of Resource Economics, Annual Reviews, vol. 4(1), pages 331-352, August.
    4. Eun K Choi, 2005. "Infrastructure Aid, Deindustrialization, and Welfare," IMF Working Papers 05/150, International Monetary Fund.
    5. Mahvash S Qureshi, 2008. "Africa’s Oil Abundance and External Competitiveness; Do Institutions Matter?," IMF Working Papers 08/172, International Monetary Fund.
    6. Christian Volpe Martincus & Sandra Milena Gómez, 2009. "Trade Policy and Export Diversification: What Should Colombia Expect from the FTA with the United States," IDB Publications (Working Papers) 9292, Inter-American Development Bank.
    7. Fofack, Hippolyte, 2009. "Africa and Arab Gulf states : divergent development paths and prospects for convergence," Policy Research Working Paper Series 5025, The World Bank.
    8. Beckmann, Elisabeth & Fidrmuc, Jarko, 2009. "Oil Price Shock and Structural Changes in CMEA Trade," Discussion Papers in Economics 10963, University of Munich, Department of Economics.
    9. Torfinn Harding & Anthony J Venables, 2016. "The Implications of Natural Resource Exports for Nonresource Trade," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(2), pages 268-302, June.
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    11. Brock Smith, 2014. "Dutch Disease and the Oil and Boom and Bust," Economics Series Working Papers OxCarre Research Paper 13, University of Oxford, Department of Economics.
    12. Brunnschweiler, Christa N., 2008. "Cursing the Blessings? Natural Resource Abundance, Institutions, and Economic Growth," World Development, Elsevier, vol. 36(3), pages 399-419, March.
    13. Christian Volpe Martincus & Sandra Milena Gómez, 2009. "Trade Policy and Export Diversification: What Should Colombia Expect from the FTA with the United States," IDB Publications (Working Papers) 2498, Inter-American Development Bank.
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    17. Hattendorff, Christian, 2014. "Natural resources, export concentration and financial development," Discussion Papers 2014/34, Free University Berlin, School of Business & Economics.
    18. Somayeh Mardaneh, 2012. "Inflation Dynamics in a Dutch Disease Economy," Discussion Papers in Economics 12/25, Department of Economics, University of Leicester.
    19. Maria-Dolores, Ramon & José Rodolfo, Morales, 2012. "The Natural Resource Curse: An Analysis of the Dutch Case based on Sectoral Economies of Scale," UMUFAE Economics Working Papers 26673, DIGITUM. Universidad de Murcia.
    20. Elisabeth Beckmann & Jarko Fidrmuc, 2012. "Oil Price Shock and Structural Changes in CMEA Trade: Pouring Oil on Troubled Waters?," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 9(1), pages 31-49, April.
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    More about this item

    Keywords

    Dutch disease; resource booms; gravity model; manufacturing exports; energy; trade; industry.;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

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