Investigating the Transmission Channels behind Dutch Disease Effects : Lessons from Mongolia Using a CGE Model
This paper uses a computable general equilibrium model -- Maquette for Millennium Development Goal Simulations (MAMS) -- calibrated to Mongolia to investigate how the development of major mining projects leads to Dutch disease. The simulations sugg...
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| Format: | Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2017
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| Online Access: | http://documents.worldbank.org/curated/en/360391504722434946/Investigating-the-transmission-channels-behind-Dutch-disease-effects-lessons-from-Mongolia-using-a-CGE-model http://hdl.handle.net/10986/28360 |
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okr-10986-283602021-06-14T10:11:56Z Investigating the Transmission Channels behind Dutch Disease Effects : Lessons from Mongolia Using a CGE Model Khan, Tehmina S. Gottschalk, Jan CGE MODELS DUTCH DISEASE NATURAL RESOURCES MAMS MINING MDGs WINDFALL REVENUES This paper uses a computable general equilibrium model -- Maquette for Millennium Development Goal Simulations (MAMS) -- calibrated to Mongolia to investigate how the development of major mining projects leads to Dutch disease. The simulations suggest that the process is complex, with the relative strength of the different spending and resource movement channels determined by structural features of the economy, such as factor input needs of the mining sector and substitution elasticities, and how mineral windfalls are eventually spent. In Mongolia, mining sector demand for domestic factor inputs explains two-thirds of the appreciation of the real exchange rate, with demand for labor, a "quasi-fixed" factor, the most potent channel for transmitting Dutch disease. The simulations also suggest that public policies may only play a limited role in limiting Dutch disease, even if growing fiscal revenues are channeled toward productivity-enhancing public investment rather than public consumption or lower taxes. This finding suggests that policy makers face real trade-offs, namely that, as an equilibrium response, Dutch disease is unavoidable and at odds with an export-led, manufacturing-oriented development strategy unless resources are left in the ground (or mining earnings are saved abroad). If the objective is to limit Dutch disease, then the simulations point to policies that minimize the usage of domestic inputs by the mining sector, or that accommodate the growing demand for key inputs such as labor e.g. through immigration. Regarding spending, policy makers should channel mining revenues toward public investment, to expand the economy's long-run supply potential. Where large direct income flows from the mining sector to households are important, monetary policy may be more useful than fiscal policy in constraining private spending. 2017-09-21T18:31:28Z 2017-09-21T18:31:28Z 2017-09 Working Paper http://documents.worldbank.org/curated/en/360391504722434946/Investigating-the-transmission-channels-behind-Dutch-disease-effects-lessons-from-Mongolia-using-a-CGE-model http://hdl.handle.net/10986/28360 English en_US Policy Research Working Paper;No. 8183 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper East Asia and Pacific Mongolia |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
CGE MODELS DUTCH DISEASE NATURAL RESOURCES MAMS MINING MDGs WINDFALL REVENUES |
| spellingShingle |
CGE MODELS DUTCH DISEASE NATURAL RESOURCES MAMS MINING MDGs WINDFALL REVENUES Khan, Tehmina S. Gottschalk, Jan Investigating the Transmission Channels behind Dutch Disease Effects : Lessons from Mongolia Using a CGE Model |
| geographic_facet |
East Asia and Pacific Mongolia |
| relation |
Policy Research Working Paper;No. 8183 |
| description |
This paper uses a computable general
equilibrium model -- Maquette for Millennium Development
Goal Simulations (MAMS) -- calibrated to Mongolia to
investigate how the development of major mining projects
leads to Dutch disease. The simulations suggest that the
process is complex, with the relative strength of the
different spending and resource movement channels determined
by structural features of the economy, such as factor input
needs of the mining sector and substitution elasticities,
and how mineral windfalls are eventually spent. In Mongolia,
mining sector demand for domestic factor inputs explains
two-thirds of the appreciation of the real exchange rate,
with demand for labor, a "quasi-fixed" factor, the
most potent channel for transmitting Dutch disease. The
simulations also suggest that public policies may only play
a limited role in limiting Dutch disease, even if growing
fiscal revenues are channeled toward productivity-enhancing
public investment rather than public consumption or lower
taxes. This finding suggests that policy makers face real
trade-offs, namely that, as an equilibrium response, Dutch
disease is unavoidable and at odds with an export-led,
manufacturing-oriented development strategy unless resources
are left in the ground (or mining earnings are saved
abroad). If the objective is to limit Dutch disease, then
the simulations point to policies that minimize the usage of
domestic inputs by the mining sector, or that accommodate
the growing demand for key inputs such as labor e.g. through
immigration. Regarding spending, policy makers should
channel mining revenues toward public investment, to expand
the economy's long-run supply potential. Where large
direct income flows from the mining sector to households are
important, monetary policy may be more useful than fiscal
policy in constraining private spending. |
| format |
Working Paper |
| author |
Khan, Tehmina S. Gottschalk, Jan |
| author_facet |
Khan, Tehmina S. Gottschalk, Jan |
| author_sort |
Khan, Tehmina S. |
| title |
Investigating the Transmission Channels behind Dutch Disease Effects : Lessons from Mongolia Using a CGE Model |
| title_short |
Investigating the Transmission Channels behind Dutch Disease Effects : Lessons from Mongolia Using a CGE Model |
| title_full |
Investigating the Transmission Channels behind Dutch Disease Effects : Lessons from Mongolia Using a CGE Model |
| title_fullStr |
Investigating the Transmission Channels behind Dutch Disease Effects : Lessons from Mongolia Using a CGE Model |
| title_full_unstemmed |
Investigating the Transmission Channels behind Dutch Disease Effects : Lessons from Mongolia Using a CGE Model |
| title_sort |
investigating the transmission channels behind dutch disease effects : lessons from mongolia using a cge model |
| publisher |
World Bank, Washington, DC |
| publishDate |
2017 |
| url |
http://documents.worldbank.org/curated/en/360391504722434946/Investigating-the-transmission-channels-behind-Dutch-disease-effects-lessons-from-Mongolia-using-a-CGE-model http://hdl.handle.net/10986/28360 |
| _version_ |
1764466704895705088 |