Advertisement

The Dutch Disease and Economic Diversification: Should the Approach by Developing Countries Be Different?

Chapter

Abstract

An important challenge facing resource-rich developed and developing economies is how to avoid the so-called resource curse, characterised by lower economic growth compared to resource-poor economies. Often viewed as synonymous with the Dutch disease effect, this is only one mechanism through which the resource curse can operate. This chapter reviews the resource curse literature (both theoretical and empirical), outlines the Dutch disease effect and its transmission mechanism using the seminal contribution of Corden and Neary (Economic Journal, 92(368), pp. 825–848, 1982), identifies the implications of resource production for long-run economic development and discusses the role of government and policies to reduce potential adverse impacts from the Dutch disease. A developing economy context is emphasised in this chapter.

Keywords

Resource curse Dutch disease Competitiveness De-industrialisation Economic growth Empirical evidence Policy responses 

References

  1. Abidin, M. Z. (2001). Competitive industrialization with natural resource abundance: Malaysia. In: R.M. Auty, ed., Resource Abundance and Economic Development, Oxford: Oxford University Press, pp. 147–164.Google Scholar
  2. Alexeev, M. and Conrad, R. (2009). The elusive curse of oil. Review of Economics and Statistics, 91(3), pp. 586–598.CrossRefGoogle Scholar
  3. Ali, I. and Harvie, C. (2013). Oil and Economic Development: Libya in the Post-Gaddafi Era. Economic Modelling, 32(C), pp. 273–285.Google Scholar
  4. Arezki, R. and van der Ploeg, F. (2007). Can the Natural Resource Curse be Turned into a Blessing? The Role of Trade Policies and Institutions. Washington DC: IMF, Working paper 55.Google Scholar
  5. Atkinson, G. and Hamilton, K. (2003). Savings, growth and the resource curse hypothesis. World Development, 31(11), pp. 1793–1807.CrossRefGoogle Scholar
  6. Auty, R. (1999). Resource Abundance and Economic Development: Improving the Performance of Resource-Rich Countries. Helsinki, Finland: World Institute for Development Economics Research, Research for Action 44.Google Scholar
  7. Auty, R.M. (1993). Sustaining Development in Mineral Economies: The Resource Curse Thesis. London: Routledge, p. 272.Google Scholar
  8. Auty, R.M. (1997). Natural Resources, the State and Development Strategy. Journal of International Development, 9(4), pp. 651–63.CrossRefGoogle Scholar
  9. Auty, R.M. and Gelb, A.H. (2001). Political Economy of Resource-Abundant States. In: R.M. Auty, ed., Resource Abundance and Economic Development. Oxford: Oxford University Press, pp. 126–44.Google Scholar
  10. Auty, R.M. and Kiiski, S. (2001). Natural Resources, Capital Accumulation, Structural Change, and Welfare. In: R.M. Auty, ed., Resource Abundance and Economic Development. Oxford: Oxford University Press, pp. 19–35.Google Scholar
  11. Auty, R.M. (ed). (2001a). Resource Abundance and Economic Development. Oxford: Oxford University Press, p. 356.Google Scholar
  12. Auty, R.M. (2001b). The political economy of resource-driven growth. European Economic Review, 45(4–6), pp. 839–846.CrossRefGoogle Scholar
  13. Bakwena, M., Bodman, P., Le, T. and Tang, K.K. (2010), Avoiding the Resource Curse: The Role of Institutions. Brisbane: University of Queensland, School of Economics, Macroeconomics Research Group, Working Paper.Google Scholar
  14. Baldwin, R.E. (1956). Patterns of development in newly settled regions. Manchester School, 24(2), pp. 161–179.CrossRefGoogle Scholar
  15. Barro, R. J. (1999). Determinants of democracy. Journal of Political Economy, 107(S6), pp. 158–83.CrossRefGoogle Scholar
  16. Boschini, A. D., Pettersson, J. and Roine, J. (2007). Resource curse or not: a question of appropriability. Scandinavian Journal of Economics, 109(3), pp. 593–617.CrossRefGoogle Scholar
  17. Brahmbhatt, B., Canuto, O. and Vostroknutova, E. (2010). Dealing with Dutch disease. Economic Premise, Washington DC: World Bank, No. 16.Google Scholar
  18. Brunnschweiler, C. N. (2006). Cursing the blessings? Natural resource abundance, institutions, and economic growth, Economics Working Paper Series 06/51, ETH Zurich.Google Scholar
  19. Brunnschweiler, C. N. and Bulte, E.H. (2008). The resource curse revisited and revised: a tale of paradoxes and red herrings. Journal of Environmental Economics and Management, 55(3), pp. 248–264.CrossRefGoogle Scholar
  20. Bruno, M. and Sachs, J. (1982). Energy and resource allocation: a dynamic model of the ‘Dutch disease’. Review of Economic Studies, 49(5), pp. 845–859.CrossRefGoogle Scholar
  21. Buiter, W. and Purvis, D. (1983). Oil, Disinflation, and Export Competitiveness. In: J. Bhandari and B. Putnam, eds., Economic Interdependence and Flexible Exchange Rates. Cambridge, MA: MIT Press, pp. 221–247.Google Scholar
  22. Bulte, E.H., Damania, R. and Deacon, R. (2003). Resource abundance, poverty, and development. Santa Barbara: University of California, Department of Economics, Working paper 21-04.Google Scholar
  23. Burnside, C. and Dollar, D. (2000). Aid, policies, and growth. American Economic Review, 90(4), pp. 847–868.CrossRefGoogle Scholar
  24. Collier, P. and Hoeffler, A. (2005). Resource rents, governance, and conflict. Journal of Conflict Resolution, 49(4), pp. 625–633.CrossRefGoogle Scholar
  25. Collier, P., van der Ploeg, F., Spence, M.M. and Venables, A.J. (2009). Managing resource revenues in developing economies. IMF Staff Papers, 57, pp. 84–118.CrossRefGoogle Scholar
  26. Corden, W.M. and Neary, J.P. (1982). Booming sector and de-industrialisation in a small open economy. Economic Journal, 92(368), pp. 825–848.CrossRefGoogle Scholar
  27. Corden, W. (1984). Booming sector and Dutch disease economics: survey and consolidation. Oxford Economic Papers, 36(3), pp 359–80.CrossRefGoogle Scholar
  28. Corden, W. (2012). Dutch disease in Australia: policy options for a three-speed economy. Australian Economic Review, 45(3), pp. 290–304.CrossRefGoogle Scholar
  29. Cox, G. M. and Harvie, C. (2010). Resource price turbulence and macroeconomic adjustment for a resource exporter: a conceptual framework for policy analysis. Energy Economics, 32(2), pp. 469–489.CrossRefGoogle Scholar
  30. Davis, J.M., Ossowski, R. and Fedilino, A. (eds.) (2003). Fiscal Policy Formulation and Implementation in Oil-Producing Countries. Washington DC: International Monetary Fund.Google Scholar
  31. Deaton, A. (1999). Commodity prices and growth in Africa. Journal of Economic Perspectives, 13(3), pp. 23–40.CrossRefGoogle Scholar
  32. Ding, N. and Field, B.C. (2005). Natural resource abundance and economic growth. Land Economics, 81(4), pp. 496–502.CrossRefGoogle Scholar
  33. Findlay, R. and Lundahl, M. (2001). Natural Resources and Economic Development: the 1870–1914 Experience. In: R.M. Auty, ed., Resource Abundance and Economic Development, Oxford: Oxford University Press, pp. 95–112.Google Scholar
  34. Frankel, J. A. (2012). The natural resource curse: a survey of diagnoses and some prescriptions. Cambridge MA: Harvard University, John F. Kennedy School of Government, Working Paper Series rwp12-014.Google Scholar
  35. Gelb, A. (1988). Oil Windfalls: Blessing or Curse? Oxford: Oxford University Press, for the World Bank, p. 357.Google Scholar
  36. Gylfason, T. (2001). A Nordic perspective on natural resources abundance. In: R.M. Auty, ed., Resource Abundance and Economic Development, Oxford: Oxford University Press, pp. 296–311.Google Scholar
  37. Gylfason, T. (2004). Natural resources and economic growth: from dependence to diversification. St. Gallen: Centre for Economic Policy Research, Discussion Paper 4804.Google Scholar
  38. Gylfason, T. and Zoega, G. (2006). Natural resources and economic growth: the role of investment. The World Economy, 29(8), pp. 1091–1115.CrossRefGoogle Scholar
  39. Havranek, T., Horváth, R. and Zeynalov, A. (2016). Natural resources and economic growth: a meta-analysis. World Development, 88(C), pp. 134–151.CrossRefGoogle Scholar
  40. Hirshman, A. O. (1977). A generalized linkage approach to development with special reference to staples. In: M. Nash, ed., Essays on Economic development and Cultural Change in Honour of Bert F. Hoselitz. Chicago: University of Chicago Press, pp. 67–98.Google Scholar
  41. Horvath, R. and Zeynalov, A. (2014). The natural resource curse in post-Soviet countries: the role of institutions and trade policies. Leibniz: Institute for East and Southeast European Studies, Working Paper 341.Google Scholar
  42. Humphreys, M., Sachs, J. D., and Stiglitz, J. E. (eds.). (2007). Escaping the Resource Curse. New York: Columbia University Press, p. 432.Google Scholar
  43. Ilmi, A. (2007). Escaping from the resource curse: evidence from Botswana and the rest of the world. IMF Staff Papers, 54(4), pp. 663–699.CrossRefGoogle Scholar
  44. Innis, H.A. (1954). The Cod Fisheries: The History of an International Economy. New Haven: Yale University Press, 1940. Revised. Edition, Toronto: University of Toronto Press, 1954.Google Scholar
  45. Isham, J., Woolcock, M., Pritchett, L. and Busby, G. (2005). The varieties of resource experience: natural resource export structures and the political economy of economic growth. World Bank Economic Review, 19(2), pp. 141–174.CrossRefGoogle Scholar
  46. Ismail, K. (2010). The structural manifestation of the ‘Dutch disease’: the case of oil exporting countries. Washington DC: International Monetary Fund, Working Paper No. 103.Google Scholar
  47. Jacks, D. S., O’Rourke, K.H. and Williamson, J.G. (2009). Commodity price volatility and world market integration since 1700. Cambridge, MA: National Bureau of Economic Research, Working Paper 14748.Google Scholar
  48. Jensen, N. and Wantchekon, L. (2004). Resource wealth and political regimes in Africa. Comparative Political Studies, 37(9), pp. 816–841.CrossRefGoogle Scholar
  49. Kaldor, N. (1966) Causes of the Slow Rate of Economic Growth in the United Kingdom. Cambridge: Cambridge University Press, p. 40.Google Scholar
  50. Kaldor, N. (1981) The role of increasing returns, technical progress and cumulative causation in the theory of international trade and economic growth. Economie Applique (ISMEA), 34, pp. 593–617Google Scholar
  51. Kellard, N. and Wohar, M.E. (2006). On the prevalence of trends in primary commodity prices. Journal of Development Economics, 79(1), pp. 146–167.CrossRefGoogle Scholar
  52. Kojo, N.C. (2014). Demystifying Dutch disease. Washington DC: World Bank, Policy Research Working paper No. 6981.Google Scholar
  53. Krugman, P. (1987. The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher: notes on trade in the presence of dynamic scale economies. Journal of Development Economics, 27(1–2), pp. 41–55.CrossRefGoogle Scholar
  54. Leamer, E.E, Maul, H., Rodriguez, S. and Schott, P.K. (1998). Does natural resource abundance increase Latin American income inequality? Journal of Development Economics 59(1), pp. 3–42.CrossRefGoogle Scholar
  55. Lederman, D. and Maloney, W. (2002). Open Questions about the link between Natural Resources and Economic Growth: Sachs and Warner revisited. Santiago: Central Bank of Chile, Economic Research Division, Working paper 141.Google Scholar
  56. Lederman, D. and Maloney, W.F. (2003). Trade Structure and Growth. Washington DC: World Bank, Policy Research Working Paper Series 3025.Google Scholar
  57. Lederman, D. and Maloney, W.F. (eds.) (2007). Natural Resources: Neither Curse nor Destiny. Washington DC: World Bank.Google Scholar
  58. Lederman, D. and Maloney, W.F. (2012). Does What you Export Matter? Washington, DC: World Bank.Google Scholar
  59. Leite, C. and Weidmann, J. (1999). Does Mother Nature Corrupt? Natural Resources, Corruption, and Economic Growth. Washington DC: International Monetary Fund, Working papers 99/85.Google Scholar
  60. Manzano, O., and Rigobon, R. (2007). Resource curse or debt overhang? In D. Lederman and W. Maloney, eds., Natural Resources, Neither Curse nor Destiny, Washington DC: Palo Alto, CA: Stanford Economics and Finance, an imprint of Stanford University Press.Google Scholar
  61. Matsuyama, K. (1992). Agricultural productivity, comparative advantage and economic growth. Journal of Economic Theory, 58(2), pp. 317–334.CrossRefGoogle Scholar
  62. Mehlum, H., Moene, K.O. and Torvik, R. (2006). Institutions and the resource curse, Economic Journal, 116(508), pp. 1–20.CrossRefGoogle Scholar
  63. Nankani, G. (1979). Development Problems of Mineral-Exporting Countries. Washington DC: World Bank, Staff Working Paper, 354 (SWP354).Google Scholar
  64. Papyrakis, E. and Gerlagh, R. (2004). The resource curse hypothesis and its transmission channels. Journal of Comparative Economics, 32(1), pp. 181–193.CrossRefGoogle Scholar
  65. Polterovich, V., Popov, V. and Tonis. A. (2010). Resource Abundance: A Curse or Blessing? New York NY: United Nations, DESA Working Paper No. 93.Google Scholar
  66. Prebisch, R. (1950). The economic development of Latin America and its principal problems. Economic Bulletin for Latin America, 7, pp. 1–12.Google Scholar
  67. Rodriguez, F., and Sachs, J.D. (1999). Why do resource abundant economies grow more slowly? A new explanation and an application to Venezuela, Journal of Economic Growth, 4(3), pp. 277–303.CrossRefGoogle Scholar
  68. Rodrik, D. (2008). The real exchange rate and economic growth. Brookings Papers on Economic Activity, 39(2), pp. 365–412.Google Scholar
  69. Ross, L. M. (2001). “Does oil hinder democracy? World Politics, 53(3), pp. 325–361.CrossRefGoogle Scholar
  70. Sachs, J.D. and Warner, A.M. (1995). Natural Resource Abundance and Economic Growth. Cambridge MA: NBER Working Paper No. 5398.CrossRefGoogle Scholar
  71. Sachs, J.D. and Warner, A.M. (1997). Natural Resource Abundance and Economic Growth. Cambridge, MA: Centre for International Development and Harvard Institute for International Development, Harvard University.Google Scholar
  72. Sachs, J.D. and Warner, A.M. (1999). The big push, natural resource booms and growth. Journal of Development Economics, 59, pp. 43–76.CrossRefGoogle Scholar
  73. Sachs, J.D. and Warner, A.M. (2001). The curse of natural resources. European Economic Review, 45(4–6), pp. 827–38.CrossRefGoogle Scholar
  74. Sachs, J. D. (2007). How to handle the macroeconomics of oil wealth. In: M. Humphreys, J. D. Sachs and J.E. Stiglitz, eds., Escaping the Resource Curse. New York NY: Columbia University Press, pp. 173–93.Google Scholar
  75. Sala-i-Martin, X. and Subramanian, A. (2003). Addressing the Natural Resource Curse: An Illustration from Nigeria. Washington, DC: International Monetary Fund, Working Paper 03/139.Google Scholar
  76. Sala-i-Martin, X. and Subramanian, A. (2013). Addressing the natural resource curse: an illustration from Nigeria. Journal of African Economies, 22(4), pp. 570–615.CrossRefGoogle Scholar
  77. Singer, H. (1950). Comments to the terms of trade and economic development. Review of Economics and Statistics, 40, pp. 84–89.Google Scholar
  78. Smith, B. (2015). The resource curse exorcised: evidence from a panel of countries. Journal of Development Economics, 116(C), pp. 57–73.Google Scholar
  79. Stijns, J.-P. (2005). Natural resource abundance and economic growth revisited. Resources Policy, 30(2), pp. 107–130.CrossRefGoogle Scholar
  80. Suslova E. and N. Volchkova (2006). Human Capital, Industrial Growth and Resource Curse. Available at: http://www.the-global-institute.org/act/2006conference/Volchkova-Human%20Capital.pdf
  81. Tella, R. D. and Ades, A. (1999). Rents, Competition, and Corruption. American Economic Review, 89(4), pp. 982–993.CrossRefGoogle Scholar
  82. Torvik, R. (2002). Natural resources, rent seeking and welfare. Journal of Development Economics, 67, pp. 455–470.CrossRefGoogle Scholar
  83. van der Ploeg, F. (2011). Natural resources: curse or blessing?, Journal of Economic Literature, 49(2), pp. 366–420.CrossRefGoogle Scholar
  84. van Wijnbergen, S. (1984). The ‘Dutch disease’: a disease after all?, Economic Journal, 94(373), pp. 41–55.CrossRefGoogle Scholar
  85. van Wijnbergen, S. (2008). The Permanent Income Approach in Practice. Washington DC: World Bank, unpublished manuscript. Poverty Reduction and Economic Management Network.Google Scholar

Copyright information

© The Author(s) 2019

Authors and Affiliations

  1. 1.School of Accounting, Economics & FinanceUniversity of WollongongWollongongAustralia

Personalised recommendations