One more resource curse: Dutch disease and export concentration

• Published in: Journal of development economics Vol. 132; pp. 102 - 114
• Main Authors: Bahar, Dany, Santos, Miguel A.
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.05.2018
• Subjects: Capital intensity; Concentration; Diversification; Dutch disease; Exports; Natural resources; Natural resources; Capital intensity; O13; Q33; F43; F14; Concentration; Diversification; Dutch disease; Exports; O11
• ISSN: 0304-3878; 1872-6089
• DOI: 10.1016/j.jdeveco.2018.01.002

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. •We present novel evidence linking Dutch disease to export concentration.•We model a possible mechanism of such relationship in a theoretical framework.•We empirically establish that natural resource exports lead to export concentration.•This effect is mostly driven by developing countries.•Export concentration in these cases is skewed towards capital-intensive goods.