Three Symptoms and a Cure: A Contribution to the Economics of the Dutch Disease

Posted: 16 Aug 2001

See all articles by Tryggvi Thor Herbertsson

Tryggvi Thor Herbertsson

University of Reykjavik

Marta Gudrun Skuladottir

University of Iceland - Department of Economics

Gylfi Zoega

University of Iceland; University of London - Birkbeck College; Centre for Economic Policy Research (CEPR)

Date Written: January 2000, revised May 2001

Abstract

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

Herbertsson, Tryggvi Thor and Skuladottir, Marta Gudrun and Zoega, Gylfi, Three Symptoms and a Cure: A Contribution to the Economics of the Dutch Disease (January 2000, revised May 2001). Available at SSRN: https://ssrn.com/abstract=279688

Tryggvi Thor Herbertsson (Contact Author)

University of Reykjavik ( email )

Reykjavik
Iceland
+354 8613162 (Phone)

HOME PAGE: http://www.ru.is

Marta Gudrun Skuladottir

University of Iceland - Department of Economics

Aragata 14
IS-101 Reykjavik
Iceland

Gylfi Zoega

University of Iceland ( email )

IS-101 Reykjavik
Iceland

University of London - Birkbeck College ( email )

Malet Street
London, WC1E 7HX
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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