Economic costs of the Dutch disease: empirical estimates from the Netherlands

2015

The discovery of natural gas in the Netherlands in 1959 has long

been considered one of the main reasons for the poor performance

of the Dutch economy in the 1970s and the 1980s. The term "Dutch

disease" has since its invention in 1977 been used to describe this e ect.

The Dutch disease has been thoroughly developed as a theoretical

concept, but little empirical work has been done to prove its adverse

costs to society. I employ the synthetic control method to study the

possible negative e ects the Dutch disease has had on GDP per capita

and productivity in the Netherlands. I nd no evidence of any negative

e ect in the 1970s, and while there seems to be a negative e ect in

the 1980s, it is not large enough to be signi cant and may just as

well be caused by the 1979 oil crisis and the following recession. This

thesis challenges the prevalent notion of the harmful Dutch disease,

and while the conclusions are somewhat uncertain I maintain that the

fear of the Dutch disease may be exaggerated.