Boom goes the price: giant resource discoveries and real exchange rate appreciation

Torfinn Harding; Radoslaw Stefanski; Gerhard Toews

doi:10.1093/ej/ueaa016

Boom goes the price: giant resource discoveries and real exchange rate appreciation

Torfinn Harding, Radoslaw Stefanski, Gerhard Toews

Research output: Contribution to journal › Article › peer-review

Abstract

We estimate the effect of giant oil and gas discoveries on bilateral real exchange rates. A giant discovery with the value of 10% of a country's GDP appreciates the real exchange rate by 1.5% within 10 years following the discovery. The appreciation starts before production starts and the non-traded component of the real exchange rate drives the appreciation. Labor reallocates from the traded goods sector to the non-traded goods sector, leading to changes in labor productivity. These findings provide direct evidence on the channels central to the theories of the Dutch disease and the Balassa-Samuelson effect.

Original language	English
Pages (from-to)	1715-1728
Journal	The Economic Journal
Volume	130
Issue number	630
Early online date	20 Feb 2020
DOIs	https://doi.org/10.1093/ej/ueaa016
Publication status	Published - Aug 2020

Keywords

Real exchange rates
Natural resource discoveries
Dutch disease
Oil
Balassa-Samuelson effect

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10.1093/ej/ueaa016Licence: CC BY

Harding_2020_EJ_Boom_CC
Copyright © The Author 2020. Published by Oxford University Press on behalf of Royal Economic Society. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted reuse, distribution, and reproduction in any medium, provided the original work is properly cited.
Final published version, 1.43 MBLicence: CC BY

Radek Stefanski
- rls7st-andrews.acuk
- Economics (Business School) - Senior Lecturer
- Centre for Energy Ethics
Person: Academic

Cite this

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title = "Boom goes the price: giant resource discoveries and real exchange rate appreciation",

abstract = "We estimate the effect of giant oil and gas discoveries on bilateral real exchange rates. A giant discovery with the value of 10% of a country's GDP appreciates the real exchange rate by 1.5% within 10 years following the discovery. The appreciation starts before production starts and the non-traded component of the real exchange rate drives the appreciation. Labor reallocates from the traded goods sector to the non-traded goods sector, leading to changes in labor productivity. These findings provide direct evidence on the channels central to the theories of the Dutch disease and the Balassa-Samuelson effect.",

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author = "Torfinn Harding and Radoslaw Stefanski and Gerhard Toews",

note = "Funding: BP funded Oxford Centre for the Analysis of Resource Rich Economies (Oxcarre) and the Equinor chair in Economics at NHH is gratefully acknowledged.",

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AU - Toews, Gerhard

N1 - Funding: BP funded Oxford Centre for the Analysis of Resource Rich Economies (Oxcarre) and the Equinor chair in Economics at NHH is gratefully acknowledged.

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AB - We estimate the effect of giant oil and gas discoveries on bilateral real exchange rates. A giant discovery with the value of 10% of a country's GDP appreciates the real exchange rate by 1.5% within 10 years following the discovery. The appreciation starts before production starts and the non-traded component of the real exchange rate drives the appreciation. Labor reallocates from the traded goods sector to the non-traded goods sector, leading to changes in labor productivity. These findings provide direct evidence on the channels central to the theories of the Dutch disease and the Balassa-Samuelson effect.

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KW - Balassa-Samuelson effect

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JF - The Economic Journal

IS - 630

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Boom goes the price: giant resource discoveries and real exchange rate appreciation

Abstract

Keywords

UN SDGs

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Radek Stefanski

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