How to neutralize the Dutch disease notwithstanding the natural resource curse

Luiz Carlos Bresser-Pereira

Texto para Discussão EESP, 245, Maio 2017. Paper presented to the Likhachev Science Conference, St. Petersburg University of Humanities and Social Sciences, St. Petersburg, May 18-20, 2017.

This paper discusses two closely related concepts - the Dutch disease and the natural resource curse - and a third one, exchange rate populism, associated to the curse. The Dutch disease is a long-term overvaluation of the national currency that originates from the exports of commodities which originate Ricardian rents. The natural resource curse is the generalized rent-seeking that takes over a country that exports commodities. And exchange rate populism is a political practice of keeping the national currency overvalued, so to assure reelection to the politician. This paper shows that the curse and the populism will make difficult for a country to neutralize the Dutch disease, which blocks investment and growth, but argues that the fight against the natural resource curse and the exchange rate populism will be strengthened if the policymakers realize that there is a relatively simple policy that effectively neutralize the disease - a policy that was sketched almost ten years ago (Bresser-Pereira 2009), but remains hardly known by economists.

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