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The Dutch disease in Australia : policy options for a three-speed economy / W. Max Corden
Bib ID 5977189
Format BookBook, OnlineOnline
Author
Corden, W. M. (Warner Max), 1927-
 
Online Versions
Description [Parkville, Vic.] : Melbourne Institute of Applied Economic and Social Research, University of Melbourne, 2012 
27 p. ; 21 cm. 
ISBN 9780734042651
Series

Melbourne Institute working paper ; no. 12/05 1328-4991

Summary

This paper expounds the concept of Dutch Disease as it applies currently to Australia, noting the various gains and losses resulting from the Australian mining boom. "Dutch Disease" refers to the adverse effects through real exchange rate appreciation that such a boom can have on various export and import-competing industries. Particular firms or industries may be both gainers and losers. The distinction is made between the Booming Sector (mining), the Lagging Sector (exports not part of the Booming Sector, and import-competing goods and services), and the Non-tradable Sector. The main discussion focuses on policy options, given a floating exchange rate regime. What should the government do - if anything - to reduce or avoid this Dutch "disease"? The principal options are: Do nothing, piecemeal protectionism, and run a fiscal surplus, combined with lowering the interest rate and possibly establishing a Sovereign Wealth Fund. Piecemeal protectionism is likely to be politically popular but there are strong arguments against it. The costs of any measures that successfully moderate real appreciation of the exchange rate and thus Dutch Disease effects are noted, and may be considerable. This is "exchange rate protection". Gains to some industries are likely to be balanced by losses to others. It is shown, surprisingly, that a fiscal surplus that is financed by taxation of the profits of the Booming Sector may ot significantly moderate real appreciation. The reason is that this sector is to a significant extent foreign owned. An issue is whether firms and industries can be clearly divided into those that belong to the Non-tradable Sector and those that belong to the Lagging Sector, the latter being the losers from Dutch Disease. If such a clear distinction cannot usually be made, then the case for "doing nothing" is strengthened.

Notes

"February 2012".

Includes bibliographical references (p. 26-27)

Also available online. Address as at 29/05/2012: http://www.melbourneinstitute.com/downloads/working_paper_series/wp2012n05.pdf

Subjects Mineral industries -- Government policy -- Australia.  |  Manufacturing industries -- Government policy -- Australia.  |  Australia -- Economic conditions -- 2001-  |  Australia -- Economic policy -- 2001-  |  Australian
Other authors/contributors Melbourne Institute of Applied Economic and Social Research

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