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One More Resource Curse: Dutch Disease and Export Concentration

CID Research Fellow & Graduate Student Working Paper No. 68

Dany Bahar and Miguel Santos
May 2016 (Revised December 2017)

Abstract:

Economists have long discussed the negative effect of Dutch disease episodes on the non-resource tradable sector as a whole, but little has been said on its impact on the composition of the non-resource export sector. This paper fills this gap by exploring to what extent concentration of a country’s non-resource export basket is determined by their exports of natural resources. We present a theoretical framework that shows how upward pressure in wages caused by a resource windfall results in higher export concentration. We then document two robust empirical findings consistent with the theory. First, using data on discovery of oil and gas fields and of commodity prices as sources of exogenous variation, we find that countries with larger shares of natural resources in exports have more concentrated non-resource export baskets. Second, we find capital-intensive exports tend to dominate the export basket of countries prone to Dutch disease episodes.

Keywords: Concentration, diversification, exports, natural resources, Dutch disease, capital intensity.

JEL codes: F14, F43, O11, O13, Q33

Affiliated Program: Growth Lab