Dutch Disease Resistance: Evidence from Indonesian Firms
James Cust (),
Torfinn Harding () and
Pierre-Louis Vézina ()
No 192, OxCarre Working Papers from Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford
Oil and gas extraction may lead to the Dutch disease, i.e. the crowding ot of the manufacturing sector due to rising wages when labor is drawn to the expanding extraction and services sectors. In this paper we exploit the fact that oil and gas discoveries contain an element of chance as well as oil price fluctuations to capture random variation in oil and gas windfalls across Indonesia and identify their effects on manufacturing firms. We find that oil and gas windfalls cause wage growth but that the firm exit rate is unaffected. Firms’ output and labor productivity increase along with wages suggesting where firms are able to respond to booming local demand, and raise productivity in response to upward wage pressures, they can overcome the crowding-out effects from resource windfalls.
Keywords: Dutch disease; firm level; Indonesia; manufacturing firms; oil and gas (search for similar items in EconPapers)
JEL-codes: O13 O14 Q32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-eff, nep-ene, nep-lma, nep-opm, nep-sea and nep-tid
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Persistent link: https://EconPapers.repec.org/RePEc:oxf:oxcrwp:192
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