Karl, Terry Lynn. 1999. The Perils of the Petro-State: Reflections on the Paradox of Plenty. Journal of International Affairs 53, no. 1.
During the oil crisis of 73-4, many predicted that OPEC would become the most powerful bank in the world. Additionally, oil exporting nations were confident that their soaring revenues would provide for a type of developmental utopia, where all national needs were met and where investment in domestic production produced great wealth. The author of this article, however, wonders why oil reserves can be such a curse, and likens them to the touch of Midas. Though oil producing states are substantively diverse in terms of geography and demographics, they remain linked by their common reliance on energy exports, which creates its own unique set of problems.
These problems are quite similar, and all stem from an overreliance on one commodity for income. This produces a set of circumstances that change the incentives for quality behavior on the part of the leader. This also makes the country susceptible to shocks and gluts in the system. "In effect, rulers of oil exporters have no immediate incentives to be frugal, efficient and cautious in their policymaking, and they have no reason to decentralize power to other stakeholders" (37).
There is then a discussion of oil exporting countries' problems within the context of the Dutch Disease.
The author ends with a series of prescriptions as to what should be done to mitigate the above-stated problems.
Showing posts with label Dutch Disease. Show all posts
Showing posts with label Dutch Disease. Show all posts
Friday, December 19, 2008
Wednesday, April 23, 2008
Bandara: An Investigation of "Dutch Disease" economics with a miniature CGE model
Bandara, Jayatilleke S. (1991). "An investigation of "Dutch disease" economics with a miniature CGE model". Journal of Policy Modeling, 13(1), 67-92. http://www.sciencedirect.com/science/article/B6V82-45GSHRK-1D/1/62f530612e9dbc43d0d329ee3ec9a51f
Coren has examined Dutch Disease effects using a three sector model that has subsequently been referred to as the “core model”. This article uses a similar three-sector model CGE model. It concludes that the CGE is good for exploring Dutch Disease effects on economies.
The three sectors of the “core-model” are the, “’booming’ sector, which could be the oil sector or any other primary exporting sector during a period of increasing prices…the other tradables, or the ‘lagging’ sector…and…the nontradables sector, which includes services, utilities, transportation, and so on” (68). According to this model, there are three reasons for the Dutch Disease: “…an improvement in the technology of the booming sector…an increase in foreign capital inflows…an increase in the price of the export commodity” (68).
“The simplest miniature CGE model within which the static effects of the Dutch disease can be analyzed is one that distinguishes three sectors, two producing tradables, namely, import-competing goods (good 1) and exports (good 3), and the other producing nontradeables (good 2). There are three types of industry-specific capital and an intersectorally mobile factor, labor. There ar3e no intermediate inputs. The model has two categories of final users…the households consume the import-competing good and the nontradeable; domestic consumption of the import-competing good includes both domestic output and imports. These features are shown in the input-output table” (69). There is full employment. Monetary issues are not taken into consideration.
There are five different types of equations in this model: “equations describing households demands…equations describing industry demand for primary factors…pricing equations setting zero-pure profits…market-clearing equations for commodities and primary factors…equations describing the balance of payments, the consumer price index, aggregate employment and real income” (71).
Coren has examined Dutch Disease effects using a three sector model that has subsequently been referred to as the “core model”. This article uses a similar three-sector model CGE model. It concludes that the CGE is good for exploring Dutch Disease effects on economies.
The three sectors of the “core-model” are the, “’booming’ sector, which could be the oil sector or any other primary exporting sector during a period of increasing prices…the other tradables, or the ‘lagging’ sector…and…the nontradables sector, which includes services, utilities, transportation, and so on” (68). According to this model, there are three reasons for the Dutch Disease: “…an improvement in the technology of the booming sector…an increase in foreign capital inflows…an increase in the price of the export commodity” (68).
“The simplest miniature CGE model within which the static effects of the Dutch disease can be analyzed is one that distinguishes three sectors, two producing tradables, namely, import-competing goods (good 1) and exports (good 3), and the other producing nontradeables (good 2). There are three types of industry-specific capital and an intersectorally mobile factor, labor. There ar3e no intermediate inputs. The model has two categories of final users…the households consume the import-competing good and the nontradeable; domestic consumption of the import-competing good includes both domestic output and imports. These features are shown in the input-output table” (69). There is full employment. Monetary issues are not taken into consideration.
There are five different types of equations in this model: “equations describing households demands…equations describing industry demand for primary factors…pricing equations setting zero-pure profits…market-clearing equations for commodities and primary factors…equations describing the balance of payments, the consumer price index, aggregate employment and real income” (71).
Vos: Aid FLows and 'Dutch Disease' in a General Equilibrium Framework for Pakistan
Vos, Rob. (1998). "Aid Flows and "Dutch Disease" in a General Equilibrium Framework for Pakistan". Journal of Policy Modeling, 20(1), 77-109. http://www.sciencedirect.com/science/article/B6V82-3SX6HSV-6/1/cd1b6de0d68586564f4b283a05e0e972
This is a paper about the effects of aid flows to Pakistan. It uses a multisectoral general equilibrium framework to examine how aid inflows may have similar effects to large natural resource discoveries on an economy, must like the Dutch Disease. The attempt to make this model more broadly applied were not successful, suggesting that they depend, “…strongly on the existing economic structure, investment and savings behavior of institutional agents, and the allocation [of] additional capital inflows among public and private sector agents” (77).
Traditional models of international aid have shown that aid increases economic growth. This assumption has been reified through the application of two-gap models of the effect of aid on an economy. However, the effects of aid on a country’s growth possibilities is not necessarily straight-forward. There are many complicating factors that arise when a country receives foreign aid, including increasing domestic demand, possibly crowding out domestic investment, and changing the value of a country’s exports.
“One basic criticism against the fiscal response model is that it fails to take account of general equilibrium effects, such as the impact of aid on aggregate income and hence the indirect impact on tax revenue. Other more complex stories have focused attention on changes in the composition of both public and private expenditures. The increased demand for nontradables and the rising relative price of nontradables in this analysis can explain the emergence of construction booms” (79).
There have been many accounts of the Dutch Disease that use CGE models, however, these authors claim that their model is more rigorous because, “(1) more rigidities in commodity, foreign exchange, and labor markets and (2) a full accounting of financial flows and stocks in an economy with controlled and imperfect markets for domestic and foreign assets” (79). The model is built around a SAM built by Naqvi and Sarmad (1993). The model supposedly fits into the “structuralist CGE tradition, as it emphasizes different closure rules for distinct commodity and asset markets…and for the savings-investment balances of the different institutional agents” (80). This footnote asks readers to see Robinson (1988) and Taylor (1990) for more information. “…the present model can be seen as a dynamic multisectoral general-equilibrium elaboration of the three-gap model that in recent years has come to replace the celebrated two-gap model” (80).
Over the next 10 pages, the model structure is outlined in much detail. Some notable features: sectoral production and price is market-clearing, labor is exogenous, production is CES based and technology is non-changing. “Unemployment results from a mismatch between labor demand and supply (the nominal wage adjustment in response to a higher unemployment rate is not large enough to clear the labor market)” (88). While there is much market-clearing behavior, “…the model system described above defines a system of segmented and imperfect markets” (90).
This is a paper about the effects of aid flows to Pakistan. It uses a multisectoral general equilibrium framework to examine how aid inflows may have similar effects to large natural resource discoveries on an economy, must like the Dutch Disease. The attempt to make this model more broadly applied were not successful, suggesting that they depend, “…strongly on the existing economic structure, investment and savings behavior of institutional agents, and the allocation [of] additional capital inflows among public and private sector agents” (77).
Traditional models of international aid have shown that aid increases economic growth. This assumption has been reified through the application of two-gap models of the effect of aid on an economy. However, the effects of aid on a country’s growth possibilities is not necessarily straight-forward. There are many complicating factors that arise when a country receives foreign aid, including increasing domestic demand, possibly crowding out domestic investment, and changing the value of a country’s exports.
“One basic criticism against the fiscal response model is that it fails to take account of general equilibrium effects, such as the impact of aid on aggregate income and hence the indirect impact on tax revenue. Other more complex stories have focused attention on changes in the composition of both public and private expenditures. The increased demand for nontradables and the rising relative price of nontradables in this analysis can explain the emergence of construction booms” (79).
There have been many accounts of the Dutch Disease that use CGE models, however, these authors claim that their model is more rigorous because, “(1) more rigidities in commodity, foreign exchange, and labor markets and (2) a full accounting of financial flows and stocks in an economy with controlled and imperfect markets for domestic and foreign assets” (79). The model is built around a SAM built by Naqvi and Sarmad (1993). The model supposedly fits into the “structuralist CGE tradition, as it emphasizes different closure rules for distinct commodity and asset markets…and for the savings-investment balances of the different institutional agents” (80). This footnote asks readers to see Robinson (1988) and Taylor (1990) for more information. “…the present model can be seen as a dynamic multisectoral general-equilibrium elaboration of the three-gap model that in recent years has come to replace the celebrated two-gap model” (80).
Over the next 10 pages, the model structure is outlined in much detail. Some notable features: sectoral production and price is market-clearing, labor is exogenous, production is CES based and technology is non-changing. “Unemployment results from a mismatch between labor demand and supply (the nominal wage adjustment in response to a higher unemployment rate is not large enough to clear the labor market)” (88). While there is much market-clearing behavior, “…the model system described above defines a system of segmented and imperfect markets” (90).
Benjamin, et. al.: The 'Dutch' Disease in a Developing Country
Benjamin, Nancy C., Shantayanan Devarajan and Robert J. Weiner. (1989). "The `Dutch' disease in a developing country : Oil reserves in Cameroon". Journal of Development Economics, 30(1), 71-92. http://www.sciencedirect.com/science/article/B6VBV-45N4YMP-28/1/52d7bc2d92c6e8d2c68098621297ee21
This paper examines the effects of the Dutch Disease on a developing country. A CGE is used to determine the effects of the oil boom. The conclusion is that the agriculture sector is likely to be hurt and that manufacturing will reap some benefits.
The Dutch Disease is the result of a large commodity boom, typically that of natural resources such as gas or oil, and the broader, sectoral effects on a country’s economy. Firstly, currency reserves will increase substantially. There will also be a rise in the value of the nation’s currency, which will lead to a decrease in the ability of exports to remain competitive. Exports will decrease and non-tradable sectors of the economy will suffer from inflation. Typically, the effects of the Dutch Disease are examined from the perspective of a developed country.
The “Australian model” is examined. One aspect of this model is the separation of the effects of a natural resource explosion is on both resource movement and spending (73).
The “salient” features of the CGE model are described: “Differentiation between imports and domestic goods by sector…differentiation between Cameroonian exports and other exports…differentiation between exports and domestic goods…sector-specific factors…closure rule [“…the level of foreign savings is…exogenous…the level of investment is determined by the level of savings in the economy…”]…numeraire [nominal exchange rate]…” (80).
The conclusion is that the assumption of imperfect substitutability between domestic and foreign goods is a crucial determinant of the outcome of a boon of natural resources for a developing countries and that different skill-sets of workers will benefit differently.
This paper examines the effects of the Dutch Disease on a developing country. A CGE is used to determine the effects of the oil boom. The conclusion is that the agriculture sector is likely to be hurt and that manufacturing will reap some benefits.
The Dutch Disease is the result of a large commodity boom, typically that of natural resources such as gas or oil, and the broader, sectoral effects on a country’s economy. Firstly, currency reserves will increase substantially. There will also be a rise in the value of the nation’s currency, which will lead to a decrease in the ability of exports to remain competitive. Exports will decrease and non-tradable sectors of the economy will suffer from inflation. Typically, the effects of the Dutch Disease are examined from the perspective of a developed country.
The “Australian model” is examined. One aspect of this model is the separation of the effects of a natural resource explosion is on both resource movement and spending (73).
The “salient” features of the CGE model are described: “Differentiation between imports and domestic goods by sector…differentiation between Cameroonian exports and other exports…differentiation between exports and domestic goods…sector-specific factors…closure rule [“…the level of foreign savings is…exogenous…the level of investment is determined by the level of savings in the economy…”]…numeraire [nominal exchange rate]…” (80).
The conclusion is that the assumption of imperfect substitutability between domestic and foreign goods is a crucial determinant of the outcome of a boon of natural resources for a developing countries and that different skill-sets of workers will benefit differently.
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