Seminar Paper / Institute for International Economic Studies, Stockholm University

This paper presents a theoretical analysis of the 'Dutch Disease': the phenomenon whereby a boom in one traded goods sector squeezes porfitability in other traded goods sectors, both by directly bidding resources away from them and by placing upward pressure on the exchange rate. The effects of such a boom on resource allocation and income distribution are studied in a variant of the "Australian" modek of a small open economy, under different assummptions about the degree of intersectoral factor mobility. Published in connection with a visit at the IIES This paper presents a theoretical analysis of the 'Dutch Disease': the phenomenon whereby a boom in one traded goods sector squeezes porfitability in other traded goods sectors, both by directly bidding resources away from them and by placing upward pressure on the exchange rate. The effects of such a boom on resource allocation and income distribution are studied in a variant of the "Australian" modek of a small open economy, under different assummptions about the degree of intersectoral factor mobility. Published in connection with a visit at the IIES