Three Symptoms and a Cure: A Contribution to the Economics of the Dutch Disease
Posted: 16 Aug 2001
Date Written: January 2000, revised May 2001
This paper extends the literature on the Dutch disease by showing how natural resources can reduce secondary-sector employment and investment through channels involving labor-market externalities and exchange-rate volatility. We then look at data from Iceland - which is one of few OECD countries that may have a serious problem of this sort - and look for evidence supporting our hypotheses. We find a clear effect of primary sector output and its volatility on real wages. Moreover, high real wages are shown to impede investment and employment in the secondary sector.
Keywords: Dutch disease, exchange-rate volatility
JEL Classification: F41, O23, Q33
Suggested Citation: Suggested Citation