Services, Inequality, and the Dutch Disease
This paper shows how Dutch disease effects may arise solely from a shift in demand following a natural resource discovery. The natural resource wealth increases the demand for non-tradable luxury services due to non-homothetic preferences. Labor th...
| Main Authors: | , , |
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| Language: | English en_US |
| Published: |
World Bank Group, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2014/07/19760476/services-inequality-dutch-disease http://hdl.handle.net/10986/19359 |
| Summary: | This paper shows how Dutch disease
effects may arise solely from a shift in demand following a
natural resource discovery. The natural resource wealth
increases the demand for non-tradable luxury services due to
non-homothetic preferences. Labor that could be used to
develop other non-resource tradable sectors is pulled into
these service sectors. As a result, manufactures and other
tradable goods are more likely to be imported, and learning
and productivity improvements accrue to the foreign
exporters. However, once the natural resources diminish,
there is less income to purchase the services and
non-resource tradable goods. Thus, the temporary gain in
purchasing power translates into long-term stagnation. As
opposed to conventional models where income distribution has
no effect on economic outcomes, an unequal distribution of
the rents from resource wealth further intensifies the Dutch
disease dynamics within this framework. |
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