Dealing with Dutch Disease

Milan Brahmbhatt (), Otaviano Canuto and Ekaterina Vostroknutova ()
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Milan Brahmbhatt: World Bank
Ekaterina Vostroknutova: World Bank

World Bank - Economic Premise, 2010, issue 16, 1-7

Abstract: This note looks at so-called Dutch disease, a phenomenon reflecting changes in the structure of production in the wake of a favorable shock (such as a large natural resource discovery, a rise in the international price of an exportable commodity, or the presence of sustained aid or capital inflows). Where the natural resources discovered are oil or minerals, a contraction or stagnation of manufacturing and agriculture could accompany the positive effects of the shock, according to the theory. The note considers channels through which such natural resource wealth can affect the economy. It also focuses on the development implications of Dutch disease, particularly the potential negative effects related to productivity dynamics and volatility; and concludes with a summary of possible policy responses, including the mix of fiscal, exchange rate, and structural reform policies.

Keywords: Dutch disease; shock; natural resources; comodities; capital; aid; oil; minerals; manufacturing; agriculture; wealth; volatility (search for similar items in EconPapers)
JEL-codes: E51 F21 Q33 Q5 Q57 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (68)

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Working Paper: Dealing with Dutch Disease (2010)
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