Is The Dutch Disease Ample Evidence Of A Resource Curse? The Case of Libya
The Dutch disease refers to an appreciation of the real exchange rate resulting from increased exports and capital inflows within a country with a booming resource industry. This elevated exchange rate feeds back into the rest of the economy and can crowd out other exporting sectors. This paper attempts to add to the literature by shedding some light on the existence of this mechanismin Libya over the period 1970-2010. It applies a time series approach to explore the relationship between oil price, gross domestic product, and trade balance as independent variables and real exchange rate as dependent variable.According to the theory, the general appreciation of the national currency negatively affects the economy, but this theoretical hypothesis is not crucial in some cases, as in the case of Libya.
Keyword- Real exchange rate, Cointegration, Dutch disease