The Dutch disease and its neutralization: a Ricardian approach
The Dutch disease is a major market failure originated in the existence of cheap and abundant natural or human resources that keep overvalued the currency of a country for an undetermined period of time, thus turning non profitable the production of tradable goods using technology in the state-of-the-art. It is an obstacle to growth on the demand side, because it limits investment opportunities. The severity of the Dutch disease varies according to the extent of the Ricardian rents involved, i.e., according to the difference between two exchange rate equilibriums: the current or market rate and the industrial rate - the one that make viable efficient tradable industries. Its main symptoms, besides overvalued currency, are low rates of growth of the manufacturing industry, artificially high real wages, and unemployment. Its neutralization requires managing the exchange rate. The principal instrument for that is a sales or export tax on the commodities that give origin to the Dutch disease. In order to neutralize it policymakers face major political obstacles since it involves taxing exports and reducing wages. Finally, this papers argues that there is an extended concept of Dutch disease: besides having its origin in natural resources, it may arise from cheap labor provided that the wage spread in the developing country is considerably larger than in the developed one - a condition that is usually present.
| Main Author: | |
|---|---|
| Format: | Digital revista |
| Language: | English |
| Published: |
Centro de Economia Política
2008
|
| Online Access: | http://old.scielo.br/scielo.php?script=sci_arttext&pid=S0101-31572008000100003 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|