The Dutch Disease in Reverse: Iceland’s Natural Experiment

Thorvaldur Gylfason and Gylfi Zoega

No 138, OxCarre Working Papers from Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford

Abstract: Abundant natural resources brought Iceland a systemically overvalued currency, with adverse effects on the secondary tradable sector. During 2003-2008 another national treasure, the sovereign’s AAA rating, was used to attract foreign capital, elevating the real exchange rate even further. The financial collapse in 2008 left the country with a large foreign debt without the possibility of rollovers in international capital markets. This offset some of the effect of the natural resources on the real exchange rate; in effect, this was the Dutch disease in reverse as witnessed, in particular, by a massive increase in the number of tourists in recent years.

Keywords: Natural resource curse; Dutch disease; financial crisis (search for similar items in EconPapers)
JEL-codes: F41 O23 O33 (search for similar items in EconPapers)
Date: 2014-05-17
New Economics Papers: this item is included in nep-opm
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:oxf:oxcrwp:138

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