Dutch Disease-cum-financialization Booms and External Balance Cycles in Developing Countries

Abstract

RESUMo: Neste artigo nós investigamos a dinâmica de médio a longo prazo que emerge do fenômeno da doença holandesa com financeirização. Nós nos inspiramos no caso mais recente do padrão de desenvolvimento da Colômbia. A doença holandesa "pura" causa desindustrialização, em primeiro lugar, ao apreciar permanentemente a taxa de câmbio no longo prazo. A financeirização neste caso, isto é, os maiores influxos de capital em um cenário de excesso de otimismo financeiro puxado pela existência de recursos naturais, leva no médio prazo a uma maior volatilidade na taxa de câmbio e à instabilidade macroeconômica. Este processo prejudica ainda mais o desenvolvimento do setor manufatureiro ao aumentar a incerteza na economia. A recomendação é, portanto, pela adoção do controle de capitais e por uma política monetária desenvolvimentista a fim de confrontar os fenômenos da financeirização e da doença holandesa. PALAVRAS-CHAVE: Doença holandesa; financeirização; volatilidade cambial; política monetária desenvolvimentista.ABSTRACT: We formally investigate the medium-to-long-run dynamics emerging out of a Dutch disease-cum-financialization phenomenon. We take inspiration from the most recent Colombian development pattern. The "pure" Dutch disease first causes deindustrialization by permanently appreciating the economy's exchange rate in the long run. Financialization, i.e., booming capital inflows taking place in a climate of natural resource-led financial overoptimism, causes medium-run exchange rate volatility and macroeconomic instability. This jeopardizes manufacturing development even further by raising macroeconomic uncertainty. We advise the adoption of capital controls and a developmentalist monetary policy to tackle these two distinct but often intertwined phenomena.

Determinants of real exchange rate movements in 15 emerging market economies

“…The finding regarding the current account is in line with the Dutch Disease literature, and moreover backs the empirical evidence of third section that substantial current account deficits weaken EME currencies. The result that financial gross inflows appreciate EME currencies is in line with our hypotheses and recent theoretical and empirical evidence (Bresser-Pereira, 2009;Cardarelli et al, 2010;Ibarra, 2011;Goda & Torres García, 2015;Botta, 2017). The negative sign of the foreign reserve variable suggests that the interventions of EME Central Banks to avoid more substantial appreciations (depreciations) were at least partially successful.…”

Determinants of Real Exchange Rate Movements in 15 Emerging Market Economies

“…The finding regarding the current account is in line with the Dutch Disease literature, and moreover backs the empirical evidence of Section 4 that substantial current account deficits lead to a weak currency in EME. The result that financial gross inflows appreciate EME currencies is in line with our hypotheses and recent theoretical and empirical evidence (Bresser Pereira, 2009;Cardarelli et al, 2010;Ibarra, 2011;Goda & Torres Garcia, 2015;Botta, 2017). The negative sign of the foreign reserve variable suggests that the interventions of EME Central Banks to avoid more substantial appreciations (depreciations) were at least partially successful.…”

The effect of exports on a wealth of a country: a comment on the role of natural capital in the Amazon basin

“…The "pure" Dutch disease causes deindustrialization, in the first place, by permanently appreciating the exchange rate in the long run. And when the Dutch disease comes along with the financialization of the economy, i.e., booming natural resource-oriented FDI and portfolio investment, such long-run exchange rate appreciation may be accompanied by medium-term exchange rate volatility and macroeconomic instability (Botta, 2017). The disease assumes that the high revenues from its exports of natural resources have implications for the reallocation of production factors, in the less competitive exchange rate for industrialized products, with negative effects on exports of these products and investments in the sectors.…”