IDEAS home Printed from https://ideas.repec.org/a/eee/glofin/v31y2016icp31-41.html
   My bibliography  Save this article

Did EMU membership cause the “Dutch disease” in the PIGS nations?

Author

Listed:
  • Batavia, Bala
  • Nandakumar, Parameswar

Abstract

This paper analyzes the effect on the relatively poorer peripheral European nations of capital inflows resulting from entry into the EMU. A two-sector model of an open economy facilitates a study of the structural effects arising out of entry into the fraternity with the richer European core. It is observed that the vastly increased capital inflows to the so-called PIGS group of nations due to EMU entry did create conditions in the labor and goods markets, which are reminiscent of those observed when the Dutch disease, or deindustrialization phenomenon develops. The impact of EMU capital on the government sector was also studied. It is noted that for a non-deterioration of the government budget balance, a traded sector that is large relative to the nontraded sector will be required, as will be a large private nontraded sector relative to the government sector. The authenticity of these derived conditions for non-deterioration of the budget balance seems to be borne out by cross-country data on the PIGS nations.

Suggested Citation

  • Batavia, Bala & Nandakumar, Parameswar, 2016. "Did EMU membership cause the “Dutch disease” in the PIGS nations?," Global Finance Journal, Elsevier, vol. 31(C), pages 31-41.
    • Handle: RePEc:eee:glofin:v:31:y:2016:i:c:p:31-41
    DOI: 10.1016/j.gfj.2016.06.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1044028316300771
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.gfj.2016.06.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Martin Hellwig, 2011. "Quo vadis, Euroland? European Monetary Union between Crisis and Reform," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2011_12, Max Planck Institute for Research on Collective Goods.
    2. P J Forsyth & J A Kay, 1980. "The economic implications of North Sea Oil Revenues," Fiscal Studies, Institute for Fiscal Studies, vol. 1(3), pages 1-28, July.
    3. André Sapir, 2011. "A Comprehensive Approach to the Euro-Area Debt Crisis," ULB Institutional Repository 2013/174297, ULB -- Universite Libre de Bruxelles.
    4. Zsolt Darvas & Christophe Gouardo & Jean Pisani-Ferry & André Sapir, 2011. "A comprehensive approach to the euro-area crisis- Background calculations," Working Papers 499, Bruegel.
    5. Eloísa Ortega & Juan Peñalosa, 2012. "The Spanish economic crisis: key factors and growth challenges in the euro area," Occasional Papers 1201, Banco de España.
    6. repec:kap:iaecre:v:17:y:2011:i:3:p:288-299 is not listed on IDEAS
    7. Roberto Frenkel & Martin Rapetti, 2012. "External Fragility or Deindustrialization: What is the Main Threat to Latin American Countries in the 2010s?," World Economic Review, World Economics Association, vol. 2012(1), pages 1-37, September.
    8. Hunt Allcott & Daniel Keniston, 2015. "Dutch Disease or Agglomeration? The Local Economic Effects of Natural Resource Booms in Modern America," Working Papers 15-41, Center for Economic Studies, U.S. Census Bureau.
    9. van Wijnbergen, Sweder J G, 1984. "The 'Dutch Disease': A Disease after All?," Economic Journal, Royal Economic Society, vol. 94(373), pages 41-55, March.
    10. Torsten Persson, 2001. "Currency unions and trade: how large is the treatment effect?," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 16(33), pages 434-448.
    11. repec:wea:worler:v:2012:y:2012:i:1:p:3 is not listed on IDEAS
    12. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 15(30), pages 08-45.
    13. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-848, December.
    14. Whelan, Karl, 2014. "Ireland’s Economic Crisis: The Good, the Bad and the Ugly," Journal of Macroeconomics, Elsevier, vol. 39(PB), pages 424-440.
    15. Jeffrey Frankel & Andrew Rose, 2002. "An Estimate of the Effect of Common Currencies on Trade and Income," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(2), pages 437-466.
    16. Manfred Gärtner & Björn Griesbach & Florian Jung, 2011. "PIGS or Lambs? The European Sovereign Debt Crisis and the Role of Rating Agencies," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 17(3), pages 288-299, August.
    17. Neary, J Peter & van Wijnbergen, S, 1984. "Can an Oil Discovery Lead to a Recession? A Comment," Economic Journal, Royal Economic Society, vol. 94(374), pages 390-395, June.
    18. Eastwood, R K & Venables, A J, 1982. "The Macroeconomic Implications of a Resource Discovery in an Open Economy," Economic Journal, Royal Economic Society, vol. 92(366), pages 285-299, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. João Alcobia & Ricardo Cabral, 2023. "The Dutch disease of the Euro Area peripheral member states," Working Papers REM 2023/0257, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bitros, George C. & Batavia, Bala & Nandakumar, Parameswar, 2016. "Economic crisis in the European periphery: An assessment of EMU membership and home policy effects based on the Greek experience," The North American Journal of Economics and Finance, Elsevier, vol. 36(C), pages 312-327.
    2. Batavia, Bala & Nandakumar, Parameswar & Wague, Cheick, 2013. "Export stagnation and budget deficits in the peripheral EU nations with EMU membership," The Journal of Economic Asymmetries, Elsevier, vol. 10(2), pages 94-100.
    3. van der Ploeg, Frederick, 2019. "Macro policy responses to natural resource windfalls and the crash in commodity prices," Journal of International Money and Finance, Elsevier, vol. 96(C), pages 263-282.
    4. Hilde C. Bjørnland & Leif Anders Thorsrud, 2013. "Boom or gloom? Examining the Dutch disease in a two-speed economy," Working Papers No 6/2013, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    5. Hilde C. Bjørnland & Leif A. Thorsrud, 2016. "Boom or Gloom? Examining the Dutch Disease in Two‐speed Economies," Economic Journal, Royal Economic Society, vol. 126(598), pages 2219-2256, December.
    6. Frederick van der Ploeg, 2011. "Natural Resources: Curse or Blessing?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 366-420, June.
    7. Baek, Seung-Gwan, 1996. "Favorable External Shocks, Sectoral Adjustment and De-industrialization in Non-Oil Producing Economies," Center for International and Development Economics Research, Working Paper Series qt9hg553xj, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
    8. Kota Ogasawara, 2021. "Technology, Institution, and Regional Growth: Evidence from Mineral Mining Industry in Industrializing Japan," Papers 2112.14514, arXiv.org, revised Dec 2024.
    9. Hilde Christiane Bjørnland, 1996. "Sources of Business Cycles in Energy Producing Economies - The case of Norway and United Kingdom," Discussion Papers 179, Statistics Norway, Research Department.
    10. Grant Mark Nülle & Graham A. Davis, 2018. "Neither Dutch nor disease?—natural resource booms in theory and empirics," Mineral Economics, Springer;Raw Materials Group (RMG);Luleå University of Technology, vol. 31(1), pages 35-59, May.
    11. Everhart, Stephen & Duval-Hernandez, Robert, 2001. "Management of oil windfalls in Mexico : historical experience and policy options for the future," Policy Research Working Paper Series 2592, The World Bank.
    12. van der Ploeg, Frederick & Venables, Anthony J., 2013. "Absorbing a windfall of foreign exchange: Dutch disease dynamics," Journal of Development Economics, Elsevier, vol. 103(C), pages 229-243.
    13. Bergin, Paul R. & Lin, Ching-Yi, 2012. "The dynamic effects of a currency union on trade," Journal of International Economics, Elsevier, vol. 87(2), pages 191-204.
    14. Frederick Ploeg, 2011. "Fiscal policy and Dutch disease," International Economics and Economic Policy, Springer, vol. 8(2), pages 121-138, June.
    15. Robert Barro & Silvana Tenreyro, 2007. "Economic Effects Of Currency Unions," Economic Inquiry, Western Economic Association International, vol. 45(1), pages 1-23, January.
    16. Petr Rozmahel & Ladislava Issever Grochová & Marek Litzman, 2014. "The Effect of Asymmetries in Fiscal Policy Conducts on Business Cycle Correlation in the EU. WWWforEurope Working Paper No. 62," WIFO Studies, WIFO, number 47249.
    17. Zsolt Darvas & György Szapáry, 2008. "Business Cycle Synchronization in the Enlarged EU," Open Economies Review, Springer, vol. 19(1), pages 1-19, February.
    18. Christoph Fischer, 2011. "Currency blocs in the 21st century," Globalization Institute Working Papers 87, Federal Reserve Bank of Dallas.
    19. Bröcker, Johannes, 2004. "Regional welfare effects of the European Monetary Union," Studies in Spatial Development: Chapters, in: Akademie für Raumforschung und Landesplanung, Hannover (ed.), Spatial implications of the European Monetary Union, volume 6, pages 27-43, ARL – Akademie für Raumentwicklung in der Leibniz-Gemeinschaft.
    20. Natalie Chen & Dennis Novy, 2022. "Gravity and Heterogeneous Trade Cost Elasticities," The Economic Journal, Royal Economic Society, vol. 132(644), pages 1349-1377.

    More about this item

    Keywords

    Financial and economic aspects of economic integration; Capital flows; Budget deficits; Trade and labor markets;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:glofin:v:31:y:2016:i:c:p:31-41. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620162 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.