Dutch Disease : a numerical approach

Abstract

The aim of this dissertation is to develop a model that would allow to analyze under which conditions shocks to the economy can lead to reallocation of labor between sectors and the so-called Dutch Disease, that in this paper is defined as the reallocation of labor across sectors given changes to exogenous variables. It is proved that there are changes in the exogenous variables that do not lead to labor reallocation, and changes in variables such as total productivity factor of tradable goods, relative prices of energy, and net foreign assets, lead to labor reallocation, which under certain assumptions may harm growth. Furthermore, an analysis of Angola’s economy over the last decade is carried out, in where there’s the conclusion that the combined shock in the prices and production of oil have been followed by an expansion of other sectors of production and not a decrease as expected. Therefore, it is possible to show that the cause of the resource curse may not be the Dutch Disease. The assumptions used in the model are presented in the following sections.