Page 95 - Azerbaijan State University of Economics

Iurii Korobeinikov: Dutch disease and Venezuelan economics in retrospective

As it can be seen from Fig.11, incomes of Venezuelan citizens are in pro-cyclical

correlation with the oil prices, which means that during the oil booms country’s economics

experiences the rise or wage rates.

Results, discussion and conclusions

In the classical trade model of economics booming of natural resources sector should not

be regarded as problem. Country should specialize on the natural resource sector and benefit

from it. At the same time, such approach is not considering the crucial role of manufacturing

sector in the country’s strategic, political and social issues. Besides that, developing successful

natural resource extraction sector requires deliberately less effort, time and expertise then to

develop manufacturing especially vertically integrated production chains. Therefore, countries

experiencing Dutch Disease are upon a threat of losing manufacturing which will be hard or not

possible to restore after finishing the resource extraction (Krugman, 1987: 41–55) due to

degradation of management practices.

Analysis of Venezuelan economics’ indicators in the last three decades allows concluding

that Venezuelan economy performs rather typical features of country exposed to Dutch Disease.

Despite the absence of the exchange rate analysis of local currency and relatively rough real

wage rate analysis, most important symptoms of Dutch Disease are clearly detected. It means

that Venezuelan government did not manage to transfer the export revenues of the natural

extraction sector to the creation of strong and competitive manufacturing industry. This

conclusion is in a good agreement with the results of Berry’s (2008: 148-174) analysis of

Venezuela economics development policy. In other words, export revenues were mainly spent on

the improving of today’s well-being of citizens and, in certain sense, not invested to the future.

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