Dutch Disease Dynamics Reconsidered

48 Pages Posted: 8 Aug 2019

See all articles by Hilde C. Bjørnland

Hilde C. Bjørnland

Norwegian School of Management (BI); Norges Bank

Leif Anders Thorsrud

Centre for Applied Macroeconomics and Commodity Prices (CAMP), BI Norwegian Business School

Ragnar Torvik

Norwegian University of Science and Technology (NTNU) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 8, 2019

Abstract

In this paper we develop the first model to incorporate the dynamic productivity consequences of both the spending effect and the resource movement effect of oil abundance. We show that doing so dramatically alters the conclusions drawn from earlier models of learning by doing (LBD) and the Dutch disease. In particular, the resource movement effect suggests that the growth effects of natural resources are likely to be positive, turning previous growth results in the literature relying on the spending effect on their head. We motivate the relevance of our approach by the example of a major oil producer, Norway. Empirically we find that the effects of an increase in the price of oil may resemble results found in the earlier Dutch disease literature, while the effects of increased oil activity increases productivity in most industries. Therefore, models that only focus on windfall gains due to increased spending potential from higher oil prices, would conclude - incorrectly based on our analysis - that the resource sector cannot be an engine of growth.

Keywords: Dutch disease, resource movements, learning by doing, analytics of multidimensional dynamic systems, time-varying VAR model

JEL Classification: C32, E32, F41, Q33

Suggested Citation

Bjørnland, Hilde C. and Thorsrud, Leif Anders and Torvik, Ragnar, Dutch Disease Dynamics Reconsidered (August 8, 2019). CAMA Working Paper No. 55/2019, Available at SSRN: https://ssrn.com/abstract=3434195 or http://dx.doi.org/10.2139/ssrn.3434195

Hilde C. Bjørnland (Contact Author)

Norwegian School of Management (BI) ( email )

P.O. Box 580
N-1302 Sandvika
Norway

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

Leif Anders Thorsrud

Centre for Applied Macroeconomics and Commodity Prices (CAMP), BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Ragnar Torvik

Norwegian University of Science and Technology (NTNU) - Department of Economics ( email )

N-7491 Trondheim
Norway
+47 735 91420 (Phone)
+47 735 96954 (Fax)

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