1. Team: ArtemChepurnoy Vera Lazarenko DmitriyKovalenko DmitriyAsinovskiy EvgeniaBelova Dutch disease (resource curse) Impact on international competitiveness
2. What is the Natural Resource Curse? Many developing countries with abundant natural resources experience lower rates of economic growth and development than countries with few natural resources
3. “Dutch Disease” The Economist (1977) 1960s – Discovery of large natural gas deposits in the North Sea Subsequent shift in resources and decline in the manufacturing sector
5. Dutch Disease1970s: Netherlands “Crowding out” of manufacturing led to lost jobs Creation of “safety net” social programs resulted in high levels of unemployment and disabilities
8. The Specific Factor Model TRADABLE Manufacturing Energy/Mineral WORLD ECONOMY COUNTRY ECONOMY NON-TRADABLE
9. The Specific Factor Model 𝑝(𝑡) = 𝑐𝑜𝑛𝑠𝑡 – relative international prices for tradable goods are fixed 𝑝(𝑛) – price for non-tradable goods is determined by demand and supply
10. The Specific Factor Model TRADABLE Manufacturing Manufacturing-type capital Energy/Mineral Labor Natural resources NON-TRADABLE Non-tradable-type capital
11. The Specific Factor Model Each sector uses two factors of production: 𝑌𝑖=𝑌𝑆𝐹𝑖,𝐿 𝑆𝐹𝑖 - specific factor of production for sector 𝑖 𝐿 - labor, which is perfectly mobile among sectors The real wage is perfectly flexible
12. Spending effect There is a boom in mineral sector, which increases country GDP and thus demand in the country 𝑌𝐷. Let’s suppose, the demand increases equally on manufacturing and on non-tradable products.
15. Spending effect So, the price for non-tradable goods rises in terms of tradable goods This makes production of non-booming tradable goods less attractive for domestic producers Finally, tradable goods (manufacturing) sector narrows
16. Factor reallocation effect 𝑤 𝑤 𝑉𝑀𝑃𝐿𝑌 𝑉𝑀𝑃𝐿𝑋 Manufacturing industry (Y) Mineral industry (X) 𝑤2 𝑤2 𝑤1 𝑤1 𝑂𝑥 𝑂𝑦 𝐿1 𝐿2 Labor distribution
17. Factor reallocation effect Labor force moves from the manufacturing industry, so the industry lacks for labor Cost of labor increases for manufacturing industry So, this effect squeezes profitability and output of the manufacturing industry Decreased global competitiveness of manufacturing sector due to high domestic input prices In some cases, foreign producers may enter the market and drive down prices to level where domestic producers cannot compete
18. Effects of resource curse: practical implications Market effect Exchange rate appreciation Price volatility, discouraged FDI Demand for labor, capital, goods Deflected entrepreneurial activity Government spending Social programs Political Rent-seeking and corruption Social Capital Formation Savings False sense of security High inequality Change in economic incentives of individuals
19. Effect on wealth creation: Change in economic incentives of individuals Engage in entrepreneurial activity in other sectors Gain a share of the wealth of booming sector: industry's growth is usually limited by the availability of the resource (size, rate of usage) cannot be expanded by having resources being put into it Competing for a larger share of a pie of fixed size
20. Symptoms and diagnosis Mineral wealth’s correlation with: Appreciation of the real exchange rate Civil wars Low economic diversification/growth Authoritarianism/poor governance & weak institutions High inequality
22. International Competitiveness Analyzing of macroeconomic performance Explaining of international trade trends Main factors: technologicalinnovation degree of product specialization the quality of the products involved, or the value of after-sales service high rates of productivity growth
23. Measures of international competitiveness Difficult to measure No unique approach Criteria: Cover all sectors Encompass all the markets Fully comparable internationally data
24. Measures of international competitiveness Import Competitiveness (IC) Export Competitiveness (EC) Overall Competitiveness EC* + IC* INTERLINK Model explains changes in countries’ changing in exports
28. Nigeria: since 1970 GDP 54% Total Export Earnings Oil 91% 10% Employment 70% Agriculture
29. Nigeria: problems Huge external debt High unemployment Overdependence on oil Huge public expenditures Corruption Money wasted
30. Russia Ratio of Hydrocarbon Exports to Gross Domestic Product, 1992–2005
31. Russia 1991-1998 Russian manufacturing industry: -56% Machine building and metalworking: -64% Timber, woodworking, paper industry: -66% Building materials: -70% Light industry: -89% Food processing: -47% Crude oil output: -32% Gas output: -15% As a result, additional hydrocarbon resources were freed up for export. Thus, Russia experienced the onset of the “Dutch disease” in 1992–1998.
42. Norway and oil discovery No harm to non-oil sectors Economical development Used government policies to avoid DD
43. Norway’s policies to avoid DD Pay back foreign debts when possible Invest abroad Encourage domestic accumulation of instead of using foreign specialists Channel resources into education, research and development Putemphasisonknowledge, technological progress, and human capital Stimulate female participation in the labor market
44. BOTSWANAEVIDENCE & EXPLANATION OF EXCEPTIONALISM Sustained economic growth and socio-economic development since 1966 Mineral wealth Good macro-economic management Good governance and institutions
48. Explanation 2: Good macro-economic management Successful in utilizing the financial capital from mining to drive and sustain economic growth and development. Popular explanation: country’s sound macro-economic objectives and policies
49. Explanation 2 Two objectives adopted very early: Avoidance of external debt and stabilization of government expenditure Management of the exchange rate in order to promote economic diversification
50. Explanation 3: Good governance and institutions A functioning constitutional multi-party democracy since 1966. Enduring social and political stability Free media Quality and respected governance and watchdog institutions
51.
52. weak development of the non-mining private sectorHigh inequality(Ginicoefficient - 0.56, 1980-1998) Increasing expenditure on public consumption (from 0.84 in 1995 to 1.08 in 2007).
53. Trends in economic sector shares, 1966-2005 (Based stats from Siphambe, 2007, p.3)
54. COMPOUNDING FACTORS Geographic isolation – landlocked deep into the interior of Southern Africa Drought proneness, soil infertility agricultural development challenging Small domestic market SACU free trade area membership HIV/AIDS Anyway, Botswana has so far largely succeededin fighting resource curse
55. Any treatments for “Dutch Disease”? Primary concern of financial institutions (World Bank/IMF): “Democratic, consensual and transparent processes” (Stiglitz) Anti-corruption programs Assistance of Western governments Stabilization funds
60. Any treatments for “Dutch Disease”? II. Boosting the competitiveness of the manufacturing sector Investing in education and infrastructure BUT NOT PROTECTIONISM! selling rights to natural resources, subsidizing other industries imposing tariffs on imported goods
63. References Booming sector and Dutch Disease Economics: Survey and Consolidation, W.M. Cordon, Oxford Economic Papers, 1984 Boom and gloom. Azerbaijan's economy, drunk on oil, is suffering rapid - inflation, The Economist, 2007 “Diagnosing Dutch disease: Does Russia have the symptoms?”, Oomes N., Kalcheva K. (2007) International Monetary Fund “Dutch disease and Azerbaijan economy”, Hasanov F., Econimics Education and Resource Consortium , Baku, 2010 DOUBLE DIAMONDS, REAL DIAMONDS: BOTSWANA’S NATIONAL COMPETITIVENESS Jay van Wyk, Pittsburg State University, Academy of Marketing Studies Journal, Volume 14, Number 2, 2010 Escaping the Natural Resource Curse and the Dutch Disease’, Larsen, E., 200, Statistics Norway, Research Department, Discussion Papers No. 377 Impact of Government Expenditure on Growth: The Case of Azerbaijan, Koeda J., Kramarenko V. , IMF Middle East and Central Asia Department, 2008 Indicators of international competitiveness: conceptual aspects and evaluation,” Durand M., Giorno C. (2008) , Organisation for Economic Co-operation and Development (OECD) Lessons from the Dutch Disease: Causes, Treatment, and Cures’, Gylfason, T., 2001, Institute of Economic Studies Nigeria: Petroleum Revenue Management, PREM Sector Unit, Sub-Saharan Africa region’, Washington DC, World Bank, 2004, The Primary Sectors of the Economy and the Dutch Disease in Nigeria’, Olusi, J., Olagunju, M., 2005, The Pakistan Development Review, Vol. 44 : 2,pp. 159–175 The Dutch disease in Russia: Macroeconomic and structural aspects,Problems of Economic Transition, Fetisov G. (2007) Vol. 50, Iss. 1, 2007, 53–73. THE DETERIORATION OF THE NETHERLANDS' EXPORT. PERFORMANCE DURING THE LATE 1970's: A MATTER. OF COMPETITIVENESS OR EXPORT STRUCTURE?, S. Brakman, C. J. Jepma and S. K. Kuipers, DE ECONOMIST, Volume 130, Number 3, 360-380 Trade in Minerals, Graham A. Davis, Division of Economics and Business,Colorado School of Mines, December 15, 2009
Notes de l'éditeur
Decreased global competitiveness of manufacturing sector due to high domestic input pricesIn some cases, foreign producers may enter the market and drive down prices to level where domestic producers cannot compete
