Is the boost in oil prices affecting the appreciation of real exchange rate?empirical evidence of Dutch disease in Colombia

Resumen

The term Dutch disease appears in relation to The Netherlands� discovery of large gas deposits in the North Sea and its harmful effects on the country�s industrial sector. The sudden increase in the country�s wealth created an inflow of capital never seen before, which led to an appreciation of its currency and, therefore, a loss of competiveness of the non-energy exporting sector. The purpose of this article is to provide empirical evidence of Dutch disease in Colombia as a consequence of the high oil prices and the increasing share in total exports of this product. A Vector Error Correction Model is estimated to determine whether oil prices are related to the real exchange rate, the Gross Domestic Product and the relative manufacturing output. Estimations show that, as expected for the Colombian economy, oil prices are weakly exogenous and positively related to the real exchange rate in the long term. Thus, increases in oil prices have a negative effect on the country�s competitiveness.