Dutch disease and the oil boom and bust

Abstract

This paper examines the impact of the oil price boom in the 1970s and the subsequent bust on non-oil economic activity in oil-dependent countries. During the boom, manufacturing exports and output increased significantly relative to non-oil countries. These measures decreased gradually during the bust and subsequent period of low prices, displaying a positive relationship with oil prices. However, exports of agricultural products sharply decreased during the boom. Imports of all types of goods displayed strong pro-cyclicality with respect to oil prices. The results suggest that increased local demand and investment spillovers from the windfall resulted in increased manufacturing activity.