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Energy and Resource Allocation: A Dynamic Model of the "Dutch Disease"

Michael Bruno, Jeffrey Sachs

NBER Working Paper No. 852
Issued in February 1982
NBER Program(s):International Trade and Investment Program, International Finance and Macroeconomics Program

It is well known that a domestic resource discovery gives rise to wealth effects that cause a squeeze of the tradeable good sector of an open economy. The decline of the manufacturing sector following an energy discovery has been termed the "Dutch disease," and has been investigated in many recent studies. Our model extends the principally static analyses to date by allowing for: (1 ) short-run capital specificity and long-run capital mobility; (2) inter- national capital flows; and (3) far-sighted intertemporal optimizing behavior by households and firms. The model is solved by numerical simulation.

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Document Object Identifier (DOI): 10.3386/w0852

Published: Michael Bruno & Jeffrey Sachs, 1982. "Energy and Resource Allocation: A Dynamic Model of the "Dutch Disease"," The Review of Economic Studies, vol 49(5).

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