Demystifying Dutch Disease
This paper examines the theory of Dutch disease and its implications for practical policy questions. Dutch disease is a term that is well-known to economists and development practitioners. But it is also a concept that is often conflated with "...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank Group, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2014/07/19893937/demystifying-dutch-disease http://hdl.handle.net/10986/19345 |
| Summary: | This paper examines the theory of Dutch
disease and its implications for practical policy questions.
Dutch disease is a term that is well-known to economists and
development practitioners. But it is also a concept that is
often conflated with "resource curse" and
misinterpreted as a "disease" that necessarily
causes adverse impacts on the economy. The paper points out
that many of the seemingly well-established arguments in
this field are not necessarily grounded in theory or
empirical evidence. Great care is needed in diagnosing Dutch
disease and formulating policy prescriptions based on the
theoretical framework, given the restrictive assumptions
that may not be fully applicable and the limited relevance
to today s inextricably intertwined trade flows. Countries
facing large inflows of foreign currency should focus on
safeguarding the domestic economy from the volatility of
international commodity and capital markets, and building
robust institutions to reduce adjustment costs and boost
broader competitiveness. A policy package needs to be
comprehensive, covering macroeconomic and structural policy
measures, and should be calibrated to target country
specific concerns. Policies may need to be adjusted
continuously in view of the evolving dynamics of the global
and domestic economic environment. |
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