China trade shock: Is there a reversal of Dutch disease for exporters of primary commodities?

This paper tests the 'Dutch disease' mechanism with a shift-share design in 98 developing countries during 1992-2012, a period in which China's soaring demand for primary commodities generated resource windfalls for natural resource-exporting countries. At the aggregate level, we find that resource windfalls increased the growth rate of the manufacturing sector but decreased the growth rate of the agricultural sector and public sector. This positive effect of resource windfalls on manufacturing growth is most likely attributable to the expansion of downstream industries of the resource sector through forward linkages. In disaggregated analyses by industry, we find that the output of the textiles industry was negatively affected by resource windfalls, which could result from exchange rate appreciation due to commodity boom. The average wage increased across a range of other industries during resource boom.