Debunking the Dutch Disease: an Empirical Analysis
Abstract
The prior literature on the phenomenon of the Resource Curse includes the theory of
the Dutch disease, in which the resource exporting sector crowds out other exports
through the an appreciation of the real exchange rate. This paper attempts to add
to this literature by shedding some light on the existence of this mechanism, exploring
the relationship between resource booms and the real exchange rate. Using a panel
of countries over time, I look at the effect of commodity price indices on countries’
real effective exchange rates, sorting the countries by their resource export-intensiveness
and by looking at a panel of countries over time. The findings fail to support the
hypothesis of the Dutch disease, as there is little evidence of a statistically significant
relationship between a commodity price index change and a real exchange rate change
for those countries who were experiencing a boom in that commodity type. Nonetheless,
the findings from this paper should be taken with extreme caution, as the regressions
were are single-factor and non-causal in nature. Further analysis would be prudent
for those interested in deciphering the extent to which this relationship does or
does not exist.
Type
Honors thesisDepartment
EconomicsSubject
Dutch DiseasePermalink
https://hdl.handle.net/10161/8180Citation
Eacho, Gregory (2013). Debunking the Dutch Disease: an Empirical Analysis. Honors thesis, Duke University. Retrieved from https://hdl.handle.net/10161/8180.Collections
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