Oil and the ‘Dutch Disease’: – The Case of the United Arab Emirates

According to the Dutch Disease core model a boom in natural resources will eventually lead to a shift of production between sectors: from tradable goods to non-tradable goods. The authors found it interesting to research if United Arab Emirates has been a subject to any of the effects caused by the disease, due to the oil boom during the 1970s and the huge development that has appeared in the country. If the United Arab Emirates would be a victim of the disease the decline in exports of the natural resource will result in a decline in the non-oil tradable goods which will affect the country negatively. Furthermore, the disease can also make it more difficult for the country to deal with the problem of high inflation. A time series covering the period 1975-2005 is used to analyse if the United Arab Emirates has experienced symptoms of the disease. Results show that the country has experienced some symptoms of the Dutch Disease during the period 1975-198 since changes in the price of oil caused tradables to shift to the non-tradable sector. Another sign of the disease is the high inflation rate Unite Arab Emirates…


1 Introduction
1.1 Purpose
1.2 Outline
2 U.A.E Background and Previous Studies
3 Theoretical Framework
3.1 The TNT Model
3.2 The Dutch Disease Models
3.3 The Corden and Neary Core Model
3.3.1 The Spending Effect
3.3.2 The Resource Movement Effect
3.4 Dutch Disease – Sachs and Larrain
3.5 Hypotheses
3.6 Method and Limitations
4 Empirical Findings and Analysis
4.1 Data
4.2 Descriptive Statistics
4.3 An Earlier Empirical Model
4.4 The Regression Model
4.4.1 Econometric Problems
4.4.2 Expected Signs of the Variables
4.5 Regression Results
5 Conclusion
List of References

Author: Kärnström, Johanna,Eden, Maxine

Source: Jönköping University

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