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Boom or Gloom? Examining the Dutch Disease in Two-Speed Economies

Bjørnland, Hilde C.; Thorsrud, Leif Anders
Working paper
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URI
http://hdl.handle.net/11250/223215
Date
2014
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  • Centre for Applied Macro- and Petroleum economics (CAMP) [124]
Abstract
Traditional studies of the Dutch disease do not account for productivity spillovers

between the booming resource sector and other domestic sectors. We put forward a

simple theory model that allows for such spillovers. We then identify and quantify

these spillovers using a Bayesian Dynamic Factor Model (BDFM). The model allows

for resource movements and spending effects through a large panel of variables at

the sectoral level, while also identifying disturbances to the commodity price, global

demand and non-resource activity. Using Australia and Norway as representative

cases studies, we find that a booming resource sector has substantial productivity

spillovers on non-resource sectors, effects that have not been captured in previous

analysis. That withstanding, there is also evidence of two-speed economies, with

non-traded industries growing at a faster pace than traded. Furthermore, com-

modity prices also stimulate the economy, but primarily if an increase is caused

by higher global demand. Commodity price growth unrelated to global activity is

less favourable, and for Australia, there is evidence of a Dutch disease effect with

crowding out of the tradable sectors. As such, our results show the importance

of distinguishing between windfall gains due to volume and price changes when

analysing the Dutch disease hypothesis.
Publisher
Handelshøyskolen BI
Series
CAMP Working Paper Series;6/2014

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