Informed diagnoses for prudent prognoses, imf working paper 0449. A spike in inflation and significant rise in imports are key indicators for dutch disease. Aug 03, 2010 read the dutch disease syndrome in egypt, jordan, lebanon, and syria. Diagnoses on, and prognoses for, the dutch disease should take into account. Pdf remittances, dutch disease, and competitiveness a. Nov 07, 2014 import still exceeds export which is also a vital sign of dutch disease. Aid may indirectly crowdout domestic investment in countries with underdeveloped financialsys tems. The effects of those funds and the reduction of financial costs can be considered as analogous to the phenomenon known as. The model is based on nkusu 2004a and uses the assump. Aid and dutch disease in low income countries, nkusu 11.
By using the basic model of dutch disease, adjusting it to the circumstance of. Informed diagnoses for prudent prognoses prepared by mwanza nkusu1 authorized for distribution by menachem katz march 2004 abstract this working paper should not be reported as representing the views of the imf. Read the dutch disease syndrome in egypt, jordan, lebanon, and syria. Recent evidence including bevan and adam, 2003, nkusu, 2004, allen, 2005, heller, 2005, imf, 2005, world bank, 2005, bourguignon and sundberg, 2006 has shown that the conventional dutch disease effects may be overturned if there are productivity spillovers. War, aid and dutch disease in nicaragua 4 more than they can pay for, with the resulting predicament being that in the long run the problem will become more chronic. Although increasingly eclipsed in popularity by institutionally based explanations, the crowdingout economic logic of the dutch disease remains a frequent explanation for the poor economic performance seen in many resourcerich countries. Nkusu, mwanza, aid and the dutch disease in lowincome countries. Informed diagnoses for prudent prognoses, imf working papers, 04, 49, 1, 2004. During 200002, concerns about a possible aidinduced dutch disease were heightened by widening macroeconomic imbalances and an upward trend in the real effective exchange rate reer. Dutch disease in central and eastern european countries.
Aid and the dutch disease in lowincome countries core. As mentioned in the conceptual section, one of the mostcited potentially perverse effects of aid on trade is the socalled dutch disease phenomenon, associated with the macroeconomic effect on a countrys competitiveness of large windfalls and their associated spending. Aid and sectoral labour productivity pablo selaya and rainer thiele abstract. External aid and selected macroeconomic indicators, 19852001 4 figures 1. But when, as in this case, a disease bears the name of the first patient diagnosed with it, it would seem. Absorption capacity and management of capital flows.
A detailed analysis by westin 2004, based on data through 2003, concluded that, despite the existence of some dutch disease symptoms, russia had not contracted the fullblown disease by end2003. Yet, the dutch disease is still evoked in the resource curse literature. Informed diagnoses for prudent prognoses, international monetary fund imf working paper no. We examine the effects of the natural resource curse on chad and find little evidence for dutch disease. Once the unrealistic assumption of full employment is relaxed, the immediate likelihood of a dutch disease diminishes.
Pdf the idea of scaling up aid to developing countries has increased fears of. The dutch disease syndrome in egypt, jordan, lebanon, and. On aid and dutch disease, nkusu 2004 tests the effects of official development assistance oda flows on dutch disease. Aid, dutch disease, and manufacturing growth, journal of development economics 941, 106118. At the aggregate level, aid is found to have a positive effect on growth of labour productivity. The term dutch disease appears in relation to the netherlands discovery of large gas deposits in the north sea and its harmful effects on the country industrial sector. Pdf aid and the dutch disease in lowincome countries. War, aid and dutch disease in nicaragua central bank of. Prati, alessandro and thierry tressel, 2006, aid volatility and dutch disease.
Second, even if aft does not produce any positive supply side effect helping to keep domestic prices stable and the national currencys value internationally competitive, the unique contribution made by aid for trade to dutch disease should be weak based on the understanding that aft remains a relatively small component of most donors. Ugandas marketfriendly development strategy and poverty reduction agenda have attracted large financial inflows, including aid. This paper demonstrates that the dutch disease need not materialize in lowincome countries that can draw on their idle productive capacity to satisfy the aidinduced increased demand. Premises of the dutch disease model and features of many lowincome countries. Dutch disease is a wellknown issue in the field of development economics. Mwanza nkusu, aid and the dutch disease in lowincome countries. Lessons from norway by thorvaldur gylfason in the original sense of the term, the dutch disease refers to the fears of deindustrialization that gripped the netherlands as a result of the appreciation of the dutch guilder that followed the discovery of natural gas deposits within the countrys jurisdiction. Structural vector autoregression suggests that changes in domestic output and prices are overwhelmingly determined by aggregate demand and supply shocks, and while oil production and high international prices negatively affect agricultural output, the effects are small.
Statistics norway, research department, discussion paper no. Huntingtons disease may present at any age, but most typically manifests between the ages of 35 and 45 years as a slowly progressive neurodegenerative movement disorder with cognitive and behavioral impairment. At the same time, interest rates have decreased substantially, mainly due to a credibility phenomenon. Dutch disease in a nutshell dutch disease is a wellknown issue in the field of development economics. The sudden increase in the countrys wealth created an inflow of capital never seen before, which led to an appreciation of its currency and, therefore, a loss of competiveness in the nonenergy exporting sector. This socalled dutch disease is named after the macroeconomic impact of natural gas discoveries in the netherlands in the 1960s, which caused appreciation of the exchangerate and shrinkage of the manufacturing sector. Has the new aid for trade agenda been export effective. The effects of those funds and the reduction of financial costs can be considered as analogous to the phenomenon known as dutch disease. Informed diagnoses for prudent prognoses, imf working paper 0449 2004. The dutch disease is a resource reallocation process away from less pro. Mar 29, 2016 the term dutch disease appears in relation to the netherlands discovery of large gas deposits in the north sea and its harmful effects on the country industrial sector. Aid and the dutch disease in lowincome countriesinformed diagnoses for prudent prognoses. The sudden increase in the countrys wealth created an inflow of capital never seen before, which led to an appreciation of its currency and, therefore, a loss of competiveness in the nonenergy exporting.
The figure below presents the core dutch disease model left panel and nkusu s modifications right panel. Rutherford, donald, 1992, dictionary of economics new york, routledge. Eleonora cavagnero a, christopher lane a, david b evans a, guy carrin a introduction. In fact, evidence suggests that it is possible for a country to receive large amounts of foreign aid, including foreign aid which leads to increased publicgovernment spending, without catching the dutch disease nkusu 2004. Dutch disease corresponds initially to the model of an economy that registers a. Crossref raghbendra jha, macroeconomic stabilization and propoor budgetary policy in the globalized economy, ssrn electronic journal, 10. Dutchdisease effects will also be weaker if there is substantial spare capacity in the economy. Multilateral development aid for africa, economic systems 29. It is an autosomaldominant disorder that has a substantial impact on family structure and dynamics in terms of providing care for. According to the original contribution by corden and neary 1982, it refers to the structural consequences of a change in the sectoral composition of an economy, i. Perspectives on globalization and wrapup rodrik, ch 1012 5. The dutch disease and longterm economic growth 14 iv. Similarly, roland 2005 argued that it is premature to conclude that the russian economy is experiencing dutch disease.
Prati, alessandro and thierry tressel, aid volatility and dutch disease. Theseadverse effectsare likely to be more pronounced if aid inflowsare spent on domestic nontradable goods. Even though, the bank of sierra leone associated it with imports related to fdi and assured of reversing the trend, it is also a cause for concern. Aid and the dutch disease nkusu, mwanza, 2004, aid and the dutch disease in lowincome countries. African department, this paper demonstrates that the dutch disease need not materialize in lowincome countries that can draw on their idle productive capacity to satisfy the aidinduced increased demand. We discuss the socalled core model of dutch disease, its limitations, extensions and the main contributions to the most recent theoretical and empirical methodologies of the dutch disease economics applied to alternative capital inflows. The dutch disease effects of remittances in emerging economies with high remittance flows like the philippines are well known see, for example, acosta, lartey, and mandelman 2009. Longterm links between raw materials prices, real exchange. Download limit exceeded you have exceeded your daily download allowance. A policymakers guide to dutch disease center for global. The paper examines empirically the proposition that aid to poor countries is detrimental for external competitiveness, giving rise to dutch disease type effects.
The macroeconomic consequences of scaling up oda terry mckinley abstract this working paper examines the validity of the claim that scaling up oda in developing countries will cause dutch disease effects that slow growth and human development. We will begin the course with some reading and writing. We employed a content analysis method to significantly explore the impact of global finance on financing for sustainable development fsd through competitiveness. Diagnoses on, and prognoses for, the dutch disease should take into account countryspecific circumstances to avoid illadvised policies.
An international business journal incorporating journal of global competitiveness on deepdyve, the largest online rental service for scholarly research with thousands of academic publications available at your fingertips. In contrast, dutch disease effectsare mitigated when. Lowincome developing countries need to substantially increase expenditure to meet universal coverage goals for essential health services and to achieve significant improvements in. The model is based on nkusu 2004a and uses the assump tions of the dutch disease model developed by corden and neary. Access to the site requires registration for the class and a valid uw netid. To do the evaluation, the key economic indicators such as gdp, composition of gdp of the various sector, trade balance, macroeconomic. Why do many economists believe that in developing countries a large surge of capital inflows, such as official development assistance oda, will lead to a dutch disease, and not development. Dutch disease economics and the oil syndrome dutch disease studies on the structural impact of a booming resource exports sector, while numerous, can all be considered variations of the core model of dutch disease in which the impact of the boom is decomposed into two effects. Remittances, dutch disease, and competitiveness a bayesian analysis article pdf available in journal of economic development 382 january 2011 with 591 reads how we measure reads. Semantic scholar extracted view of exogenous inflows and real exchange rates. The sad result of 40 years of research, uni versity of aarhus working paper no. When and why norway caught up with and forged ahead of its neighbors. Aidfinanced public investments and the dutch disease.
Remittances, exchange rate regimes and the dutch disease. One result of the flow of foreign aid in nicaragua is the presence of the symptoms of dutch disease in most dutch disease empirical literature variable contractions are only. Nkusu 2004, table 1 and world bank, world development indicators 2004. Nkusu, aid and the dutch disease in lowincome countries.
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