Page 81 - Azerbaijan State University of Economics

Iurii Korobeinikov: Dutch disease and Venezuelan economics in retrospective

resource-poor countries. Its main hypothesis is that country that is endowed with some mineral

resource (exporting it to the large proportion or having boom on one product of economy)

experiences appreciation (enforcement of exchange rate) of local currency that hinders exports of

other products of economics, especially with high value-added and also leads to migration of labor

and capital to the resource extraction sector. All these effects lead to decreasing of growth rate of the

country together with degradation of other (high-tech and\or high value-added) sectors of economics.

To describe the Dutch Disease economists use different models. In the classical literature

on this topic two sectors are considered: tradable (T) and non-tradable goods (N). One of the

major differences is the economic growth driver. Models of “…van Wijnbergen (1984),

Krugman (1987), Matsuyama (1992) and Gylfason et al. (1999)… assume that LBD[Auth:

Learning By Doing] only benefits the sector where it is generated, while productivity in the rest

of the economy is constant…” (in: Matsem, 2005 - 494-515). Thus, LDB provides the growth

only in the tradable sector while non-tradable (N) growth remains unaffected.

Further consideration of such models revealed their complexity for the purposes of present

work. That’s why rather simplified 3-sector model (instead of 2-sector model) will be applied in the

present study. The model consists of service sector and two goods-trading sectors such as “booming”

sector and “lagging” one. Booming sector is usually trading some mineral resources such as oil, gas

or ores, while lagging sector is assumed to be all sorts of manufacturing. Due to increase in world

price of mineral resources, booming sector experiences huge inflows of foreign currencies and

becomes more attractive to foreign and domestic investments. Moreover, not only investment and

financial resources are migrating to the booming sector, but labor force does the same as well.

The model includes also increasing the demand of services (or, so called, non-tradable

sector). Thus service sector also becomes a “magnet” to the labor force and investment.

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