RE: Re: Re: Question about "dutch disease"

["Davies, Daniel" <daniel.davies@xxxxxxxxxxxx>]

Dutch disease was an absolutely massively fashionable topic when I was at
university, mainly because Nickell and Muellbauer had declared it to be
interesting.  The idea is that, if you've struck natural gas or some such,
then you're very likely to be running a massive current account surplus for
the foreseeable future (cf: the UK and North Sea Oil).  Because you're
running a current a/c surplus in the whole economy, the likelihood is that
you're going to be running a deficit in the non-oil economy; you're paying
for some overseas goods with oil rather than manufactures (it's easiest to
make this argument by assuming an exchange rate model, but it can be done
using only accounting identities and flow of funds).  The argument then ran
that there is path-dependency in manufacturing production ("hysteresis" was
the then popular term), and that for this reason, if manufacturing
production was run down during the oil period, it would find itself in a
weakened, under-invested state when the oil ran out, and your economy would
have "Dutch disease".  NB that this is a one-sector argument and entirely
consistent with striking oil being a Good Thing for the economy as a whole
-- Nickell viewed the idea as actually laughable that it could be bad to
strike oil.

I'm showing my age, aren't I?

dd


-----Original Message-----
From: Bill Lear [mailto:rael@xxxxxxxxxx]
Sent: 25 February 2002 12:55
To: pen-l@xxxxxxxxxxxxxxxxxxx
>Subject: [PEN-L:23185] Re: Re: Question about "dutch disease"


On Sunday, February 24, 2002 at 20:40:53 (-0800) Eugene Coyle writes:
>Why wouldn't the cheaper natural resource, as an input to the productive
>process, lower the cost of manufactured goods and make them MORE
>competitive with other nations?

Exactly my question.  As I understand it, the US has benefited very
much from having cheap natural resources, which it has (had?) used
primarily to fuel its industrialization.


Bill


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