Does the Canadian Economy Suffer from Dutch Disease?

Michel A. R. Beine, Charles S. Bos, Serge Coulombe
2009 Social Science Research Network  
We argue that the failure to disentangle the evolution of the Canadian currency from the U.S. currency leads to potentially incorrect conclusions regarding the case of Dutch disease in Canada. We propose a new approach that is aimed at extracting both currency components and energy-and commodity-price components from observed exchange rates and prices. We first analyze the separate influence of commodity prices on the Canadian and the U.S. currency components. We then estimate the separate
more » ... t of the two currency components on the shares of manufacturing employment in Canada. We show that 42 per cent of the manufacturing employment loss that was due to exchange rate developments between 2002 and 2007 is related to the Dutch disease phenomenon. The remaining 58 per cent of the employment loss can be ascribed to the weakness of the U.S. currency. . The authors thank Robert Vermeulen for assistance and Ram Acharya for providing us with data. The paper benefited from useful comments and suggestions by participants of the ERAC seminar of Industry Canada, Ottawa, of the CES-IFO annual workshop in Munich, at GREQAM seminar in Marseille and at the 3rd workshop of the MIFN network in Luxembourg. We thank in particular Ram Acharya,
doi:10.2139/ssrn.1336635 fatcat:ublerjhvqfgibiget3e65e2to4