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The Symptoms of Illness: Does Israel Suffer from “Dutch Disease”?

Ruslana Palatnik, Tchai Tavor () and Liran Voldman ()
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Tchai Tavor: Department of Economics and Management, The Max Stern Yezreel Valley College, Emek Yezreel 19300, Israel
Liran Voldman: Department of Economics and Management, The Max Stern Yezreel Valley College, Emek Yezreel 19300, Israel

Energies, 2019, vol. 12, issue 14, 1-19

Abstract: The natural gas revolution in Israel started about two decades ago. Its numerous social impacts include moving to cleaner energy, improving energy security and the balance of trade, tightening international relations, and increasing tax revenue. However, “Dutch disease” phenomena—where the accelerated export of natural gas leads to the strengthening of the local currency, the subsequent weakening of other exporting industries, and rising unemployment—might suck Israel into the economic slowdown. This study examines whether the strengthening of the New Israeli Shekel (ILS) in recent years is a symptom of “Dutch disease”. It is expected that the large-scale export of natural gas will start in 2021 with the development of the major offshore field “Leviathan”. Notably, ILS has been appreciating for several years already. We employed the event study approach to analyze the fluctuations of the daily ILS/USD real exchange rate in the years 2009–2017, combined with the media announcements related to the gas discoveries published during this period. The results revealed that gas-related news does affect the exchange rate and appreciate ILS. GARCH analysis confirms the results.

Keywords: Dutch disease; natural gas; event study; real exchange rate; announcements; currency appreciation; export; expectations (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:gam:jeners:v:12:y:2019:i:14:p:2752-:d:249488