Which euro-zone countries still suffer from “Dutch disease”?
Author: Patrick Artus. FLASH ECONOMICS ECONOMIC RESEARCH, April 21, 2016 – No. 392
Monday 25 April 2016, by Carlos San Juan
Dutch disease is a situation where the price of services (more generally,
goods that are not traded internationally) increases relative to the price of
industrial products (goods traded internationally), leading to a higher return
on capital in (domestic) services than in industry (and industry-related
services) and resulting in a transfer of capital to services,
deindustrialisation, declining sophistication of the economy and external
Dutch disease can have several causes: in its initial version, the fact that
commodity revenues are partially spent on services, which drives up the
price of services; but it can also arise due to weak competition in services
relative to industry, the effects of an overvalued exchange rate, etc.
We examine the situations of Germany, France, Spain and Italy.
• Have these countries suffered from Dutch disease, and in which
periods? France, Spain and Italy have suffered from Dutch disease
since the 1990s.
• Have recent developments (depreciation of the euro, fall in
commodity prices; in some countries increased labour market
flexibility, reduction in labour costs, reduction in corporate taxes)
caused Dutch disease to subside in any of these countries? This is
the case in France and Spain.