Dutch Disease and Structural Transformation: Synthetic Control Evidence from Ghana's Oil Discovery

Yahaya, Shaibu (2025): Dutch Disease and Structural Transformation: Synthetic Control Evidence from Ghana's Oil Discovery.

Abstract

This paper investigates the causal impact of Ghana’s 2007 oil discovery on economic growth and structural transformation. Using the Synthetic Control Method (SCM) and a donor pool of 24 non-oil-producing Sub-Saharan African countries, I estimate the counterfactual trajectory of Ghana’s economy in the absence of the oil boom. The results reveal that the discovery generated a substantial positive income shock: real GDP per capita increased by an average of $361.42 (28.64%) between 2008 and 2021 relative to the synthetic counterfactual. Crucially, the divergence begins in 2008, two years prior to commercial production, providing empirical support for an anticipatory "news shock" driven by investment expectations. However, a sectoral decomposition uncovers significant structural distortions consistent with Dutch Disease. While the industrial sector expanded dramatically, the agricultural and service sectors contracted relative to their counterfactual potentials, providing robust evidence of a "Resource Movement Effect" that crowded out traditional economic activities. These findings suggest that while oil wealth successfully accelerated aggregate growth and provided a fiscal buffer during the COVID-19 pandemic, it simultaneously induced a "two-speed" economy that threatens long-term diversification.

• Item Type: MPRA Paper
• Language: English
• Keywords: Natural Resources, Dutch Disease, Synthetic Control Method, Structural Transformation, News Shocks, Ghana
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture ; Natural Resources ; Energy ; Environment ; Other Primary Products; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O55 - Africa; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q32 - Exhaustible Resources and Economic Development; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q33 - Resource Booms

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