Booming Sector and De-Industrialisation in a Small Open Economy

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ID: 290003
1982
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Abstract
This paper attempts to provide a systematic analysis of some aspects of structural change in an open economy.In particular, we are concerned with an increasingly common phenomenon in both developed and developing countries, sometimes referred to as the 'Dutch disease': the coexistence within the traded goods sector of progressing and declining, or booming and lagging, sub-sectors.In many cases -minerals in Australia, natural gas in the Netherlands, or oil in the United Kingdom, Norway and some members of O P E C -t h e booming sector is of an extractive kind, and it is the traditional manufacturing sector which is placed under pressure.Hence a major aim of the paper is to explore the nature of the resulting pressures towards 'de-industrialisation'. 1 However, our analysis is equally applicable to cases where the booming sector is not extractive (such as the displacement of older industry by technologically more advanced activities in Ireland, J a p a n or Switzerland).This is so because we are primarily concerned with the medium-run effects of asymmetric growth on resource allocation and income distribution, rather than with the longer-run issue of optimal depletion rates which has been the focus of recent work on the economics of exhaustible resources.(See Dasgupta and Heal, 1978.)Moreover, in order to highlight the structural aspects of a boom we ignore monetary considerations and focus on its implications for real rather than nominal variables.We are thus able to draw on and extend the standard tools of international trade theory in order to throw light on the specific problem of a sectoral boom.The plan of the paper is as follows.Section I introduces the basic framework, which is essentially a variant of t h e ' dependent economy' model of Salter (1959), producing two traded goods and one non-traded good. 2 This section outlines the various models to be examined and introduces an important distinction between the two principal effects of a boom.The next three sections consider the effects * We are grateful to the Institute for International Economic Studies, Stockholm, and the Committee for Social Science Research in Ireland for supporting this research, and to Ronald Jones, two anonymous referees, and participants in seminars at Geneva, Oxford, Renvyle (IAUTE), Sheffield, Stockholm, Vienna (IIASA) and the S.S.R.C. Summer Workshop on International Economics (University of Warwick, 1980) for helpful comments.1 Of course, in many countries, including the United Kingdom, the effects of the booming sector are superimposed on a downward trend in the share of manufacturing in national output due to other reasons.Indeed, prior to the recent appreciation of Sterling many British economists saw North Sea oil primarily as a potential source of tax revenue which might be used to cure de-industrialisation rather than as a factor contributing to it.(See the discussion in Blackaby (1978).)More recently, however, commentators such as Forsyth and Kay (1980) have adopted a general-equilibrium viewpoint closer to ours.See also various papers in Eltis and Sinclair (1981).2 In using this model to analyse the effects of a boom in one sector, we draw on and extend the analysis of the Australian case by Gregory (1976), Snape (1977) and Porter (1978), whose general applicability has been noted in Corden (1981 b).In particular we build on the contribution of Snape, who presents the same model as in Section II below and anticipates some of our results.
Reference Key
openalex_W1803375205 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors W. M. Corden, J. Peter Neary
Journal the economic journal
Year 1982
DOI
10.2307/2232670
URL
https://academic.oup.com/ej/article-pdf/92/368/825/27197189/ej0825.pdf
Keywords Keywords not found

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