PhD Lunch Seminars Amsterdam

Paul Pelzl (VU Amsterdam)
Tuesday, 12 September 2017

The theoretical literature has established that a booming natural resource sector reduces the competitiveness of other tradable sectors and potentially harms economic growth via a real exchange rate appreciation (“Dutch Disease”). The existing empirical work, however, has produced inconclusive results. We analyze the effect of exogenous shocks to the value of mineral deposits at the district level (“mining booms”) in Indonesia on the local manufacturing sector. By using plant-level data and distinguishing treatment intensity within a country, we overcome potential endogeneity issues inherent to the existing literature, and provide novel results on an emerging economy. We find that local mining booms spur immigration from other districts and leave manufacturing wages largely unchanged. This implies no potential for Dutch Disease, and consistent with this result, both producers of highly and lowly-tradable manufacturing products benefit from mining booms in terms of employment. Importantly, however, we do observe Dutch Disease dynamics in districts where labor-intensive minerals extraction takes place: Wages significantly increase and producers of highly tradable manufacturing goods reduce employment, while their counterparts continue to benefit during mining booms in such districts. We control for oil booms at the district level and complement our analysis by also studying other sectors during mining booms.