The Dutch disease of the Euro Area peripheral member states

João Alcobia and Ricardo Cabral

No 2023/0257, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: This paper analyzes explanations identified in the literature for the subpar economic performance of the so-called peripheral member states of the Euro Area since the mid-1990s. It argues that a key factor was a Dutch disease-like transmission mechanism, as the adoption of the euro led to a capital inflow shock. This resulted in a structural shift in the productive structure of the peripheral economies away from technologically advanced manufactured goods, which are characterized by higher productivity growth. As a consequence, the peripheral member states specialized in non-tradable sectors, and in low-technology and labor-intensive tradable goods sectors, which largely explains the peripherals’ low economic growth, low productivity growth, and growing macroeconomic imbalances.

Keywords: Financial Dutch disease; peripheral member states of the Euro Area; non-price competitiveness; Euro Area architecture (search for similar items in EconPapers)
JEL-codes: E12 F15 O11 O14 O20 O41 O52 (search for similar items in EconPapers)
Date: 2023-01
New Economics Papers: this item is included in nep-eec, nep-eff, nep-fdg and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ise:remwps:wp02572023

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