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Analysis of the “Dutch Disease” effect: The case of resource-rich ASEAN economies

Taguchi, Hiroyuki and Soukvisan, Khinsamone (2017): Analysis of the “Dutch Disease” effect: The case of resource-rich ASEAN economies.

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Abstract

This paper examines the applicability of the Dutch Disease hypothesis by using a vector auto-regression model, focusing on the five resource-rich and middle-income economies in the Association of Southeast Asian Nations (ASEAN): Malaysia and Indonesia as the forerunners, and Lao PDR, Myanmar and Vietnam as the latecomers at their development processes. The empirical study found that the latecomers of Lao PDR and Myanmar seemed to suffer from the Dutch Disease over the sample period; and the forerunners of Indonesia and Malaysia, on the other hand, appeared to have no Dutch Disease effect at least in the current period of 1995-2015, although Indonesia had experienced the Dutch Disease in the previous period of 1970-1995. The lessons from the forerunners’ experiences in order for the latecomers to escape from the Ditch Disease are to establish some funding system of allocating resource revenues for investment projects; to diversify domestic industries through improving business environments; and to improve institutional quality to reinforce resource governance.

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