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Fiscal Policy and Dutch Disease

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  • Frederick Van der Ploeg

Abstract

In this paper we revisit the Dutch disease paying particular attention to the role of specific factors of production and capital stock dynamics. The main insight is that if the natural resource rich windfall is substantial but not large enough for the country to become a rentier, capital goods must be produced at home and adjustment to natural resource windfall takes time. It takes time to build this home-grown capital. Specific factors are crucial to explain the dynamic responses of the real exchange rate, capital intensities and wages in response to a natural resource windfall. If a country is small and the windfall is large, it may be able to import capital and migrant labour in which case the Dutch disease can be avoided.

Suggested Citation

  • Frederick Van der Ploeg, 2011. "Fiscal Policy and Dutch Disease," CESifo Working Paper Series 3398, CESifo.
    • Handle: RePEc:ces:ceswps:_3398
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    References listed on IDEAS

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    1. Frederick van der Ploeg & Anthony J. Venables, 2011. "Harnessing Windfall Revenues: Optimal Policies for Resource‐Rich Developing Economies," Economic Journal, Royal Economic Society, vol. 121(551), pages 1-30, March.
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    16. Paul Collier & Rick Van Der Ploeg & Michael Spence & Anthony J Venables, 2010. "Managing Resource Revenues in Developing Economies," IMF Staff Papers, Palgrave Macmillan, vol. 57(1), pages 84-118, April.
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    Cited by:

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    2. Melina, Giovanni & Yang, Shu-Chun S. & Zanna, Luis-Felipe, 2016. "Debt sustainability, public investment, and natural resources in developing countries: The DIGNAR model," Economic Modelling, Elsevier, vol. 52(PB), pages 630-649.
    3. Shen, Wenyi & Yang, Shu-Chun S. & Zanna, Luis-Felipe, 2018. "Government spending effects in low-income countries," Journal of Development Economics, Elsevier, vol. 133(C), pages 201-219.
    4. Shao, Shuai & Zhang, Yan & Tian, Zhihua & Li, Ding & Yang, Lili, 2020. "The regional Dutch disease effect within China: A spatial econometric investigation," Energy Economics, Elsevier, vol. 88(C).
    5. Roberto Iacono, 2018. "The Dutch disease revisited: absorption constraint and learning by doing," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 17(1), pages 61-85, March.
    6. Mironov, V.V. & Petronevich, A.V., 2015. "Discovering the signs of Dutch disease in Russia," BOFIT Discussion Papers 3/2015, Bank of Finland Institute for Emerging Economies (BOFIT).
    7. Lacina Balma & Mthuli Ncube, 2015. "Macroeconomic Challenges of Structural Transformation: Public Investment, Growth and Debt Sustainability in Sierra Leone," IMF Working Papers 2015/164, International Monetary Fund.
    8. Agenor, P.-R., 1997. "Capital-Market Imperfections and the Macroeconomic Dynamics of Small Indebted Economies," Princeton Studies in International Economics 82, International Economics Section, Departement of Economics Princeton University,.
    9. Mariam Camarero & Jesús Peiró-Palomino & Cecilio Tamarit, 2017. "External imbalances and growth," Working Papers 2017/02, Economics Department, Universitat Jaume I, Castellón (Spain).
    10. Araujo, Juliana D. & Li, Bin Grace & Poplawski-Ribeiro, Marcos & Zanna, Luis-Felipe, 2016. "Current account norms in natural resource rich and capital scarce economies," Journal of Development Economics, Elsevier, vol. 120(C), pages 144-156.
    11. Lucas Bretschger & Simone Valente, 2011. "International economics and natural resources: from theory to policy," International Economics and Economic Policy, Springer, vol. 8(2), pages 115-120, June.

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    More about this item

    Keywords

    specific factors; real exchange rate; capital stock dynamics; factor intensity; international trade; Dutch disease; permanent income; fiscal policy rules; overlapping generations;
    All these keywords.

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General

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