ABSTRACT

This chapter reviews the short-, medium- and long-term 'Dutch disease' models and introduces the 'core model' of 'Dutch disease' to analyse the effects of a resources boom. It discusses limitations of the core model and the need for the intertemporal dynamic analysis of resources booms. The chapter also discusses some possible extensions of the basic model in the setting of a small, open, developing country. It provides a discussion of the 'construction boom' theory. A systematic analysis of 'Dutch disease' was undertaken by Max Corden and J. P. Neary using a three-sector, two-commodity, medium-term model to identify the consequences of a resources boom. The three sectors are: a booming traded sector, a non-booming or lagging sector, and a nontraded sector. The core 'Dutch disease' model perceives a resources boom to be of a permanent nature and considers some of the consequences of a resources boom in a short-term comparative static framework.