Neutralizing the Dutch disease

This paper discusses the political economy involved in the required neutralization of the Dutch disease – a long-term overvaluation of a national currency originated in exports of commodities that generate Ricardian rents or benefit from commodity booms. The difficulty in dealing with this market failure is associated to two political problems: the natural resource curse, which is the generalized rent-seeking that often takes over a commodity-exporting country, and exchange rate populism, the practice of keeping the currency overvalued, to ensure the reelection of politicians. While the two po... Mehr ...