Learning by doing and the Dutch disease

This paper develops a model of learning by doing and the Dutch disease that extends the earlier literature in two ways. First, it is assumed that both the traded and the non-traded sector can contribute to learning. Second, it is assumed that there are learning spillovers between the sectors. It is shown that within such a model a foreign exchange gift results in a real exchange rate depreciation in the long run, due to a shift in the steady-state relative productivity between the traded and the non-traded sector. In contrast to standard models of the Dutch disease, production and productivity in both sectors may go up or down. The conditions for the different cases are worked out. (C) 2001 Elsevier Science B.V. All rights reserved.