The Macroeconomics of a Financial Dutch Disease

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in ABSTRACTWe describe the medium-run macroeconomic effects and long-run development consequences of a financial Dutch disease that may take place in a small developing country with abundant natural resources. The first move is in financial markets. An initial surge in foreign direct investment targeting natural resources sets in motion a perverse cycle between exchange rate appreciation and mounting short-and medium-term capital flows. Such a spiral easily leads to exchange rate volatility, capital reversals, and sharp macroeconomic instability. In the long run, macroeconomic instability and overdependence on natural resource exports dampen the development of nontraditional tradable goods sectors and curtail labor productivity dynamics. We advise the introduction of constraints to short-and medium-term capital flows to tame exchange rate/capital flows boom-and-bust cycles. We support the implementation of a developmentalist monetary policy targeting competitive nominal and real exchange rates in order to encourage product and export diversification.

Flujos de capital, recursos naturales y enfermedad holandesa: el caso colombiano

“…similares ocurridos en el pasado, este último estuvo acompañado de fuertes entradas de capital, especialmente inversión extranjera directa (IED), para financiar su expansión 1 , favorecidos adicionalmente por el mayor grado de apertura de cuenta de capitales en años recientes. Aunque las posibles consecuencias del surgimiento de un sector boom sobre la industria y la composición sectorial son bien conocidas y analizadas en el marco de la denominada «enfermedad holandesa» (Corden y Neary, 1982y Corden, 1984, la posibilidad de que estas entradas de capital refuercen dicho proceso a través de una apreciación adicional de la tasa de cambio real (TCR), aunque han sido consideradas teóricamente (Lartey, 2008a(Lartey, , 2008bBresser Pereira, 2009;Botta, 2014), empíricamente no han logrado ser contrastadas de manera definitiva.…”

Oil Price Fluctuations and the Future of Saudi Arabian Non-Oil Traded Sector: An Empirical Investigation

“…Following Botta (2014), macroeconomic framework of the financial Dutch disease, the long-term foreign direct investment (FDI) and short-term portfolio investment are allowed. The FDI concentrates on domestic natural resources sector only.…”

“…The development of manufacturing sector can promote growth and considered a positive structural move. To look at factors that affect manufacturing progress with the assumption of manufacturing development through its share in real GDP (Botta, 2014). MA = ƒ (e, ρ , WAPI, KNR ) (5) MA / e ˃ 0;…”

“…Since the booming sector is enclave, most of the value added is not produced but a resource rent (Paldam, 2013). As a matter of fact, economists looked at financial aspects of the Dutch disease where foreign direct investment flows towards the booming sector (Botta, 2014). This process causes exchange rate to appreciate.…”

Managing the Impact of Resource Booms on the Real Effective Exchange Rate: The Role of Financial Sector Development

“…Torfinn et al (2016) find that domestic monetary expansion, driven by rising export receipts and portfolio investment, compounds the appreciation of the REER and magnifies its effect on the prices of non-tradable goods and services. Botta (2014 and further analyzes this phenomenon and finds that the increase in capital flows causes a "financial Dutch disease," which exacerbates traditional Dutchdisease effects.…”