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Overvaluation of the real exchange rate and the Dutch Disease: the Colombian case

Author

Listed:
  • Thomas Goda
  • Alejandro Torres
Abstract
In this study, we estimate the impact of the 2004-2012 energy and mining boom on the real effective exchange rate in Colombia and the sectoral composition of its economy. To this end, we introduce the new “extended Dutch Disease” concept, according to which a currency appreciation may not only occur due to traditional “spending” and “relocation” effects but also due to exports and massive inflows of external capital that finances the booming sector. The empirical results indicate that Colombia experienced an overvaluation of its real exchange rate, which in turn negatively affected the competitiveness of its manufacturing and agricultural sector.

Suggested Citation

  • Thomas Goda & Alejandro Torres, 2013. "Overvaluation of the real exchange rate and the Dutch Disease: the Colombian case," Documentos de Trabajo de Valor Público 10930, Universidad EAFIT.
    • Handle: RePEc:col:000122:010930
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    References listed on IDEAS

    as
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    Cited by:

    1. Alberto Botta, 2014. "The Macroeconomics of a Financial Dutch Disease," DEM Working Papers Series 089, University of Pavia, Department of Economics and Management.
    2. Alberto Botta & Antoine Godin & Marco Missaglia, 2016. "Finance, foreign (direct) investment and dutch disease: the case of Colombia," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 33(2), pages 265-289, August.

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    More about this item

    Keywords

    Dutch Disease; real effective exchange rate; capital flows; de-industrialization; Latin America; Colombia;
    All these keywords.

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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