Tuesday, March 25, 2014

Dutch Disease and the Oil and Boom and Bust

OxCarre WP by Brock Smith: This paper examines the impact of the oil price boom in the 1970s and the subsequent bust on non-oil economic activity in oil-dependent countries. During the boom, manufacturing value added and exports increased significantly relative to non-oil dependent countries, along with wages, employment and investment. These measures decreased, though to a lesser extent, during the bust, displaying a positive relationship with oil prices. In contrast with the Dutch Disease model, exportable manufacturing sectors grew faster than non-exportable ones. However, exports of non-hydrocarbon natural resources and agricultural products displayed a strongly negative relationship to prices. The results suggest a push towards industrialization induced by the oil revenue windfall.

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