One More Resource Curse: Dutch Disease and Export Concentration
Dany Bahar, Miguel A. Santos
Key Findings
- Countries with 30 percentage points higher natural resource export shares have 44% higher export concentration (measured by HHI)
- About 75% of the increased concentration comes from changes in relative size of existing products, not from export lines disappearing
- Capital-intensive products gain share in the export basket at the expense of labor-intensive goods during Dutch disease episodes
- Results are predominantly driven by developing countries, where diversification matters most for growth and stability
About This Research
The Dutch disease literature has long documented how resource booms shrink the non-resource tradable sector as a whole. But what happens to the composition of what remains? This paper shows that natural resource exports don't just shrink the non-resource sector—they make it dramatically more concentrated.
We develop a theoretical framework where a resource windfall increases domestic expenditure and puts upward pressure on wages. Because labor is fixed domestically while capital is internationally mobile, this wage pressure disproportionately harms labor-intensive industries. Less productive firms exit the export market, and those that remain skew heavily toward capital-intensive production.
Using data on 128 countries over 27 years, we find robust evidence for these predictions. Countries with one standard deviation higher natural resource shares have non-resource export baskets that are roughly half a standard deviation more concentrated. We use oil and gas field discoveries and commodity price spikes as sources of exogenous variation to establish causality. The concentration occurs mainly at the intensive margin—existing products gaining larger shares—rather than through product lines disappearing entirely.