Does inequality drive the Dutch disease? Theory and evidence

Behzadan, Nazanin; Chisik, Richard; Onder, Harun; Battaile, Bill

doi:10.1016/j.jinteco.2017.02.003

Cited by 26 publications

(11 citation statements)

References 31 publications

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“…First, the well-known Dutch disease argument, explained in many studies, such as Corden and Neary (1982), Matsuyama (1992), Sachs and Warner (1995), predicts a negative relationship mostly because of the unfavourable relative prices and exchange rates for the manufacturing sector (more generally tradeable sector). In a new paper, Behzadan, Chisik, Onder, and Battaile (2017) show the importance of inequality in explaining as to whether being resource rich is a blessing or curse. Second, the prices of commodity or primary products experience much more volatility (see, such as Deaton, 1999;Davis & Tilton, 2005;Van der Ploeg & Poelhekke, 2009;Venables, 2016).…”

Section: Literature Reviewmentioning

confidence: 99%

Curse or Blessing? An Empirical Re‐examination of Natural Resource‐Growth Nexus

Yanıkkaya

Turan

2018

J of Intl Development

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This study re‐examines the natural resource abundance‐growth nexus for a large sample of countries. Our findings indicate that total resource, coal, mineral, natural gas and oil rents have significantly positive effects on growth while forest rents have negative effects. While estimation results show that coal and mineral rents raise growth for resource poor countries, natural gas and oil rents (forest rents) raise (lower) growth for resource‐rich countries. Overall, our results fail to support the natural resource curse hypothesis. On the contrary, we can conclude that, except for forest rents, resource rents appear to be a blessing rather than a curse. Copyright © 2018 John Wiley & Sons, Ltd.

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Section: Literature Reviewmentioning

confidence: 99%

Curse or Blessing? An Empirical Re‐examination of Natural Resource‐Growth Nexus

Yanıkkaya

Turan

2018

J of Intl Development

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“…In this section I analyze how the home country's resource rent distribution affects the pattern of trade and the possibility of suffering a Dutch disease. From equation (10) we can see how the distribution of the resource rents affects the pattern of comparative advantage. In particular, we can characterize the ratio of the home to foreign labor share in manufacturing.…”

Section: Resource Rent Distribution and The Dutch Diseasementioning

confidence: 99%

“…9 There is an almost equally large literature that suggests that foreign aid is worse than fungible and is, in fact, used to prop up corrupt governments and their supporters. 10 Whether aid is fungible and partially serves to reduce the taxes paid by the wealthy, or is used to support cronyism and corruption, aid benefits a wealthier segment of the population that would not normally receive remittances.…”

Section: Introductionmentioning

confidence: 99%

“…Furthurmore, the role of income on growth through its effect on demand is stressed by Herrendorf, Rogerson, and Valentinyi (2014) who show that poor countries consume and 9 See, for example, Azam and Laffont (2003), Chatterjee, Giuliano and Kaya (2007), Depetris and Raay (2005), Devarajan, Rajkumar and Swaroop (2007), Gang and Khan (1991), Khilji and Zampelli (1994), Morrissey (2000, 2001), Pack (1990, 1993), Swaroop, Jha and Rajkumar (2000). 10 See, for example, Alesina and Weder (2002), Bauer (2000), Coyne and Ryan (2009), Djankov, Montalvo and Reynal-Querol (2006), Easterly (2001Easterly ( , 2006, Younas (2008).…”

Section: Introductionmentioning

confidence: 99%

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Essays on the Dutch Disease

Behzadan¹

2023

Preprint

Self Cite

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In this dissertation I analyze the effect of within-country income inequality on economic outcomes. I develop a new model of international trade with non-homothetic preferences whereby within-country income distribution affects the pattern of trade and economic growth. An appreciation of the real exchange rate inducing a production shift to the sector with less long-run growth potential is known as the Dutch disease and in this model the disease is triggered by within-country income differences. First, I show that the Dutch disease can arise solely from inequality in the distribution of natural resource rents where the country with the less equal distribution will have less production of manufacturing goods and less development of learning-by-doing in this sector. As opposed to conventional models, where income distribution has no effect on economic outcomes, an unequal distribution of the resource wealth can generate the Dutch disease. In addition, alternative forms of foreign transfers, such as foreign aid and remittances, interact with the income distribution in dissimilar manners and generate differences in spending patterns, the real exchange rate, production patterns, and the pattern of international trade. I show that while foreign aid can cause economic stagnation, remittances can in fact foster economic growth. I also provide a range of empirical tests of the theoretical model, including both difference and system GMM estimations in a dynamic panel setting and disentangle the effects of inequality and institutional quality. My empirical analyses support the hypothesis that inequality indeed plays a significant role in whether being resource-rich is a blessing or a curse for a country. The more unequal is the distribution of natural resource rents, the stronger is the disease. Moreover, I verify my hypothesis that foreign aid and remittances are not similar in generating the Dutch disease using data from a panel of countries and industries covering the years 1991-2009 while controlling for the issues of omitted variable bias and the endogeneity of the transfers. Finally, a similar method is used in order to draw empirical evidence that lends credence to the positive relation between more equal distribution of resource rents and higher manufacturing growth.

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“…Moreover, because manufacturing is more prone to learning and production process improvements, the potential gains in productivity accrue to foreign exporters. As a result, once the resource is diminished, there is less income to purchase the services, and, thus, the resource find can generate economic stagnation (Behzadan et al, 2017).…”

Section: Introductionmentioning

confidence: 99%

Could Palm Oil Plantation Increase Individual Expenditure? The Dutch Disease Implication in Indonesia

Siregar

Sihaloho

2021

Signifikan

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Indonesia is the largest palm-oil producing country, covering almost 80 percent of global production. With the extensive production capacity, this research seeks to analyze the linkages between palm oil production and its impact on the economy by the individual monthly expenditure. To reveal the connections, this research analyzes the Dutch Disease phenomenon in Indonesia, which explains how the non-tradable sector, palm-oil industry, affects the tradable sector like the manufacturing industry. The panel data variables are selected from 2011 to 2015 within 22 provinces to see the Dutch Disease's implications. As the model is suffered from the endogeneity, the correlation of explanatory variables with the error term, the research uses the Instrumental-Variable Regression method. The analysis indicates that Indonesia was not suffered from Dutch Disease. Therefore, palm oil production could increase individual expenditure. Finally, the extension of palm oil plantations could benefit Indonesia's economy without affecting other sectors.JEL Classification: E21, E24, O13, O44How to Cite:Siregar, C. D. T., & Sihaloho, E. D. (2021). Could Palm Oil Plantation Increase Individual Expenditure? The Dutch Disease Implication in Indonesia. Signifikan: Jurnal Ilmu Ekonomi, 10(1), 77-92. doi: http://doi.org/10.15408/sjie.v10i1.15831.

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Does inequality drive the Dutch disease? Theory and evidence

Cited by 26 publications

References 31 publications

Curse or Blessing? An Empirical Re‐examination of Natural Resource‐Growth Nexus

Curse or Blessing? An Empirical Re‐examination of Natural Resource‐Growth Nexus

Essays on the Dutch Disease

Could Palm Oil Plantation Increase Individual Expenditure? The Dutch Disease Implication in Indonesia

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