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Dutch disease-cum-financialization booms and external balance cycles in developing countries

Dutch disease-cum-financialization booms and external balance cycles in developing countries

Botta, Alberto (2017) Dutch disease-cum-financialization booms and external balance cycles in developing countries. Brazilian Journal of Political Economy / Revista de Economia Política, 37 (3). pp. 459-477. ISSN 0101-3157 (Print), 1809-4538 (Online) (doi:10.1590/0101-31572017v37n03a01)

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Abstract

We formally investigate the medium-to-long-run dynamics emerging out of a Dutch disease-cum-financialization phenomenon. We take inspiration from the most recent Colombian development pattern. The “pure” Dutch disease first causes deindustrialization by permanently appreciating the economy’s exchange rate in the long run. Financialization, i.e. booming capital inflows taking place in a climate of natural resource-led financial over-optimism, causes medium-run exchange rate volatility and macroeconomic instability. This jeopardizes manufacturing development even further by raising macroeconomic uncertainty. We advise the adoption of capital controls and a developmentalist monetary policy to tackle these two distinct but often intertwined phenomena.

Item Type: Article
Uncontrolled Keywords: Dutch disease; Financialization; Exchange rate volatility; Developmentalist monetary policy
Faculty / Department / Research Group: Faculty of Business
Faculty of Business > Department of International Business & Economics
Last Modified: 07 Nov 2017 11:57
Selected for GREAT 2016: None
Selected for GREAT 2017: GREAT a
Selected for GREAT 2018: None
URI: http://gala.gre.ac.uk/id/eprint/16729

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