A MIXED BLESSING

Thorvaldur Gylfason, Tryggvi Herbertsson () and Gylfi Zoega

Macroeconomic Dynamics, 1999, vol. 3, issue 2, 204-225

Abstract: This paper diagnoses the symptoms of the Dutch disease in a two-sector stochastic endogenous growth model. A productive, low-skill-intensive primary sector causes the currency to appreciate in real terms, thus hampering the development of a high-skill-intensive secondary sector and thereby reducing growth. Moreover, the volatility of the primary sector generates real-exchange-rate uncertainty and may thus reduce investment and learning in the secondary sector and hence also growth. Cross-sectional and panel regressions based on data for 125 countries in the period 1960–1992 confirm a statistically significant inverse relationship between the size of the primary sector and economic growth, but not between the volatility of the real exchange rate and growth.

Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:3:y:1999:i:02:p:204-225_01

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