OPTIMAL DUTCH DISEASE
Growth models of the Dutch disease, such as those of Krugman
(1987), Matsuyama (1992), Sachs and Warner (1995) and Gylfason et al.
(1999), explain why resource abundance may reduce growth. However, the
literature also raises a new question: if the use of resource wealth hurts
productivity growth, how should such wealth be optimally managed? This
question forms the topic of the present paper, in which we extend the
growth literature on the Dutch disease from a positive to a normative
setting. We show that the assumptions in the previous literature imply
that the optimal share of national wealth consumed in each period needs
to be adjusted down. However, some Dutch disease is always optimal. Thus
lower growth in resource abundant countries may not be a problem in itself,
but may be part of an optimal growth path. The optimal spending path of
the resource wealth may be increasing or decreasing over time, and we
discuss why this is the case.