Revisiting the Dutch disease thesis from the perspective of value-added trade

Soaring resource prices have again focused worldwide attention on the Dutch disease (DD) hypothesis, especially with regard to resource-exporting countries. However, recent decades' growing intermediate trades have led to a double-counting problem, which makes conventional trade statistics inappropriate measures of the value of goods that any particular country trades, and subsequently distorts the DD effects. This paper provides an alternative measurement of DD symptoms based on global input-output tables and linked to the value-added trade concept. Since DD symptoms are associated with the macroeconomic circumstances that each country faces and the DD effects that implementing government management policies can, to some extent, counteract, we constructed a country-based composite index: the Dutch Disease Diagnosis Index (DDDI). We did so to more closely identify the effect that might have a higher likelihood of DD during specific times. We find that mineral-dependent countries exhibit several symptoms of DD, especially since mineral prices started rising rapidly after 2003. Brazil and Australia have the highest likelihood of suffering from DD.

Automated summary

Soaring global resource prices have reignited interest in the Dutch disease hypothesis, particularly among resource-exporting countries. The rise in intermediate trades in recent decades has led to a double-counting issue, rendering conventional trade statistics inadequate in measuring the value of goods traded and distorting the effects of the Dutch disease.