An Empirical Test of the Dutch Disease Hypothesis Using a Gravity Model of Trade

61 Pages Posted: 25 Jun 2003

See all articles by Jean-Philippe Stijns

Jean-Philippe Stijns

University of California, Berkeley - Department of Economics; Universite de Liege

Date Written: May 2003

Abstract

Although the core model of the Dutch Disease makes unambiguous predictions regarding the negative effect of a resource boom on a country's manufacturing exports, the empirical literature that has followed has not clearly identified this effect. I attribute this to the failure of the existing literature to combine enough data to produce a sufficiently powerful and exogenous test. I will use the World Trade Database to systematically test this hypothesis in a gravity model of trade. World energy prices are used to bypass issues of endogeneity regarding primary exports. A one percent increase in world energy price is estimated to decrease a net energy exporter's real manufacturing exports by almost half a percent. Similarly, after instrumentation, a one percent increase in an energy exporting country's net energy exports is estimated decrease the country's real manufacturing exports by 8 percent. The corresponding confidence intervals are tight and these results are shown to be quite robust.

Keywords: Dutch disease, resource booms, gravity model, manufacturing exports, energy, trade, industry

JEL Classification: F12, F41, O13, Q33

Suggested Citation

Stijns, Jean-Philippe, An Empirical Test of the Dutch Disease Hypothesis Using a Gravity Model of Trade (May 2003). Available at SSRN: https://ssrn.com/abstract=403041 or http://dx.doi.org/10.2139/ssrn.403041

Jean-Philippe Stijns (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-501-8662 (Phone)
510-642-6614 (Fax)

HOME PAGE: http://www.well.com/user/jeanphi/resume.html

Universite de Liege ( email )

Faculte d' Economie Boulevard du Rectorat 7 (B31)
B-4000 Liege
Belgium

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
1,205
Abstract Views
5,144
rank
18,735
PlumX Metrics