Page 84 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.71, # 1, 2014, pp. 80-98

Stage 1: Inflow of foreign currency

Due to some global trade fluctuations or new resource discovery in the country the

booming sector (natural resource exploration) experiences significant inflow of foreign currency.

World prices of manufacturing products and services do not change. So inflows of foreign

currency to lagging and service sector remain unchanged.

Fig. 2. Inflow of foreign currency

Source: Korobeinikov, 2014
Stage 2: migration of labor force and capital to the booming sector

Due to rise of demand on oil the incomes in oil industry rise. The rise of incomes is reflected

also in a higher wage rates. Naturally higher incomes in oil sector attract labor force and capital

(investments). So, the process of labor force and capital migration begins. As there are only two other

places for labor force and capital to be in (manufacturing and services), part of labor and capital

attracted by higher incomes in oil sector leaves these places and moves to oil sector.

At the same time, services sector doesn’t suffer so much from labor and capital migration in

the countries exposed to Dutch Disease. In contrary, service sector usually follows the booming (oil)

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