Dutch disease dynamics reconsidered

Hilde Bjørnland (), Leif Thorsrud and Ragnar Torvik

No 2018/1, Working Paper from Norges Bank

Abstract: In this paper we develop the first model to incorporate the dynamic productivity consequences of both the spending effect and the resource movement effect of oil abundance. We show that doing so dramatically alters the conclusions drawn from earlier models of learning by doing (LBD) and the Dutch disease. In particular, the resource movement effect suggests that the growth effects of natural resources are likely to be positive, turning previous growth results in the literature relying on the spending effect on their head. We motivate the relevance of our approach by the example of a major oil producer, Norway, where it seems clear that the predictions based on existing theory do not apply. Although the effects of an increase in the price of oil may resemble results found in the earlier Dutch disease literature, the effects of increased oil activity do not. Therefore, models that only focus on windfall gains due to increased spending potential from higher oil prices, would conclude - incorrectly based on our analysis - that the resource sector cannot be an engine of growth.

Keywords: Dutch disease; resource movements; learning by doing; oil prices; time-varying; VAR model (search for similar items in EconPapers)
JEL-codes: C32 E32 F41 Q33 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2018-02-07
New Economics Papers: this item is included in nep-eff and nep-ene
References: Add references at CitEc
Citations: View citations in EconPapers (3)

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https://www.norges-bank.no/en/Published/Papers/Working-Papers/2018/12018/

Related works:
Journal Article: Dutch disease dynamics reconsidered (2019)
Working Paper: Dutch disease dynamics reconsidered (2019)
Working Paper: Dutch Disease Dynamics Reconsidered (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:bno:worpap:2018_01

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