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The Dutch disease effect in a high versus low oil dependent countries

Abstract : To investigate the main impacts of the recent increase of oil price on oil exporting economies, we estimate a DSGE model for a sample of 16 oil exporting countries (Algeria, Argentina, Ecuador, Gabon, Indonesia, Kuwait, Libya, Malaysia, Mexico, Nigeria, Oman, Russia, Saudi Arabia, United Arab Emirates, and Venezuela) over the period from 1980 to 2010, except for Russia where our sample begins in 1992. In order to distinguish between high-dependent and low-dependent countries, we use two indicators: the ratio of fuel exports to total merchandise export and the ratio of oil exports to GDP. We verify if the first group is more sensitive to the Dutch disease effect. We also assess the role of monetary policy. Our main findings are twofold. First, our results confirm the fact that the Dutch disease occurs mainly in high oil dependent countries. More precisely, we find that the manufacturing production decreases in the aftermath of a positive oil price shock in six countries (on eight) of our first sample while only Mexico suffers from a Dutch disease in the sample of low oil dependent economies. Second, the appropriate monetary policy rule -exchange rate rule versus inflation targeting one-to prevent the Dutch disease differs according to the countries. In other words, the best monetary rule is specific to each country.
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Jean-Pierre Allegret, Mohamed Tahar Benkhodja. The Dutch disease effect in a high versus low oil dependent countries. Energy Studies Review, DeGroote School of Business, McMaster University, 2014, 21 (2), pp.33-75. ⟨10.15173/esr.v21i2.2767⟩. ⟨hal-01385965⟩

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