ECONOMICS FOR BUSINESS
Project Report on –
Oil and the recent
‟Dutch Disease‟
- The Case of the United Arab
Emirates
Submitted by –
Amitava Manna
1|Page
Table of Contents
Introduction .................................................................................................................................................. 2
Purpose ......................................................................................................................................................... 3
UAE Background ........................................................................................................................................... 4
Theoretical Framework
The U.A.E is one of the countries in the Middle East which follows a pegged (or fixed) ex- change rate regime, in which foreign central banks stand ready to buy and sell their currencies at a fixed price in terms of dollars. The currency of the U.A.E, the AED was first officially pegged against the USD in 1974. By the end of 1977 fluctuations occurred widely. For over two decades the USD had been used as an anchor currency in practice when it became the official anchor currency in 2002. The decision to make the USD an anchor currency was made by the member nations of the Gulf Cooperation Council (GCC) in order to establish a common currency in 2010.
The U.A.E and the effects from the oil industry have not been studied to any great extent.
However some studies on the Dutch Disease concerning other countries have been conducted, but these studies are mainly theoretical and lack econometric testing. The studies with statistical analysis contain time series, more observations and flexible exchange rates (which could be included in the regression model).
Theoretical Framework
In order to comprehend the Dutch Disease theory, theoretical model of tradable (T) and non- tradable goods4 (NT), also known as the TNT Model can be used.
According to Sachs and Larrain (1993) the most important assumptions is that N can neither be exported nor imported and its