Does kazakhstan suffer from the dutch disease

The former Soviet Union Republic Kazakhstan is the 9th biggest state in the universe, located in Central Asia. Kazakhstan is widely known for its monolithic sum of oil militias. It possesses 30 billion barrels of proved militias, which makes it the 11th state in the universe listed harmonizing to its proved militias. It has 40 % more proved modesty than the figure 12 on the list, the United States of America ( EIA, 2008 ) .

The oil of Kazakhstan is being exploited in 15 oil Fieldss. Of these, the Tengiz field, which is discovered in 1979, is the biggest. This field is with its size of 2500 square kilometer non merely the biggest field in Kazakhstan, but besides the 6th largest field in the universe. It has an estimated 6-9 billion barrels of economically exploitable oil, and 24 billion barrels of oil available in entire.

In the 80s the available Soviet engineering, which was inferior to western engineering, was unable to ( economically ) exploit most of the available militias of Kazakhstan. As of 1991, after the independency from the Soviet Union, western based houses were granted the chance to bore for oil. For illustration, in 1993 the joint-venture Tengizchevroil, a joint venture between Chevron ( with a 50 % portion in the pool ) ; ExxonMobil ( 25 % ) ; KazMunayGas ( 20 % ) ; and LukArco ( 5 % ) , started bring forthing in the Tengiz field. Due to the jobs of the passage from communism to capitalist economy, the production of oil stayed at a comparatively low degree until 1998, but of all time since the production has increased quickly. In 2008, the production was about 3.5 times every bit high as in 1994, when the production reached its lowest value ( The Agency of Statistics of the Republic of Kazakhstan, 2010 ) . In 2008, Kazakhstan was ranked figure 19 in the universe harmonizing to the production of rough oil ( EIA, 2008 ) . Until 2030, when Kazakhstan is expected to make its oil extremum, the production of oil is merely likely to increase steadily.

In 1992 the oil production of Kazakhstan was merely a spot higher than its oil ingestion. With such degrees Kazakhstan was able to be self-sufficing, but it was non able to export its production. Since 1994, the oil production grew steadily. In 2005 the production more than doubled compared to the production degree in the 90s. Meanwhile, the ingestion declined from 1992 until 1999 and stayed stable of all time since. In 2008 the oil ingestion was half every bit high as it was in the beginning of the 90s. With a diminution in oil ingestion and a immense spring in production Kazakhstan has turned into one of the biggest oil exporting states ( EIA, 2008 ) . The net oil exports of Kazakhstan accounted for about 1.2 million barrels per twenty-four hours in 2008. That same twelvemonth, the net influxs of the foreign direct investing ( FDI ) of Kazakhstan, chiefly in the oil rich oblasts Atyrau, and Akatau, accounted for 11 % ( $ 14,647,520,460 ) of the GDP ( The World Bank, 2010 ) .

In 2003 the natural resources accounted for 86.1 % of the entire export of goods and services of Kazakhstan ( The World Bank, 2005 ) . Oil is accountable for 59 % of the entire export of Kazakhstan. Ferric metals are 2nd with a sum of 19 % . Together they account for 78 % of the export of Kazakhstan ( CIA, The World Factbook ) . It must be noted that mining itself, merely like oil and gas, is a sector that can be held responsible for the presence of the Dutch Disease. For illustration, the Spanish industry suffered from immense influxs of gold in the sixteenth century. In other words, 78 % of the exports of Kazakhstan come from sectors which promote the Dutch Disease. Kazakhstan should non merely watch the possible injury of the Dutch Disease arising from the oil sector, but it should be cognizant that the excavation sector itself might be an beginning of the Dutch Disease. However, in this paper I will merely concentrate on the Dutch Disease arising from the oil sector. But, foremost of all, what do we intend with the Dutch Disease?

Explanation of the Dutch Disease

“ The term Dutch Disease refers to the inauspicious effects on Dutch fabrication of the natural gas finds of the 19 1960ss, basically through the subsequent grasp of the Dutch existent exchange rate. ”[ 1 ]( Corden ; 1984 ) . The term ‘Dutch Disease ‘ was coined in The Economist[ 2 ]in 1977, mentioning to a loss in competiveness in the non-gas sectors due to gas grosss in the sixtiess in The Netherlands. Harmonizing to Sachs and Warner ( 1995 ) : “ resource-poor economic systems frequently immensely outperform resource-rich states in economic growing ”[ 3 ]. Resource-rich states must carefully pull off its resources in order to excite economic growing. Celebrated illustrations of the Dutch Disease are: immense gold influxs from America into Spain in the sixteenth century, the finds of gold in Australia during the 1850 ‘s, and the find of natural gas in the Netherlands in 1959.

In this paper, I will look into whether Kazakhstan suffers from the paradox suggested by Sachs and Warner. The first portion of the paper introduces the Core theoretical account, which gives a theoretical foundation of the Dutch Disease. The 2nd portion explains why the Dutch Disease is harmful for the economic system. The 3rd portion puts frontward empirical grounds which shows whether Kazakhstan suffers from the Dutch Disease.

The Core theoretical account

The Core theoretical account of Corden ( 1984 ) explains two effects that are accountable for the Dutch Disease: the disbursement consequence, and the resource motion consequence. The latter can be divided into the direct de- industrialisation consequence, and the indirect de- industrialisation consequence. This theoretical account takes two tradable sectors and a non-tradable sector into history. Namely: a booming sector ( i.e. the oil sector ) , the lagging sector ( i.e. the fabrication sector ) , and the non-tradable sector ( i.e. the services sector ) . The first two sectors encounter given universe monetary values. The non-tradable sector sets a state specific monetary value.

Labour is nomadic between the three sectors, and moves in order to equalise the pay between the three sectors. Capital, nevertheless, is immobile since it is assumed to be sector specific. A roar in the booming sector will raise the aggregative incomes of the ab initio employed.

Harmonizing to Corden, a roar can go on in three ways: via proficient betterments in the booming sector ( 1 ) , via a find of new resources ( 2 ) , or the flourishing sector exports all its end product, it has no gross revenues domestically, and monetary value of its merchandise on the universe market rises comparative to the monetary value of imports ( 3 ) . In two ways a resource roar will impact the economic system via the “ disbursement consequence ” and via the “ resource motion consequence ” . The first consequence refers to the supply side, while the 2nd consequence refers to the demand side of an economic system.

Spending consequence ( demand side )

A roar leads to excess income of the oil sector. The income of employees, net incomes of the oil sector, and/or authorities revenue enhancement grosss will travel up. Therefore, the demand for all goods in the economic system will increase. The monetary value of tradable goods is determined by the universe market and will remain stable, but the monetary value of non-tradable, comparative to tradable goods, will increase. Therefore, the existent exchange rate appreciates further. Labour will switch from the tradable sector into the non-tradable sector. This consequences into a contraction of the non-tradable sector.

Resource motion consequence ( provide side )

A roar will better the fringy merchandise of labor in the booming sector. This leads to an addition in the demand of labor in this sector. Labour will travel out of the lagging sector and the non-tradable sector, and into the flourishing sector. Since the usage of the production factors of the lagging sector declines, this consequence consequences into a contraction of the lagging sector. Corden divides the resource motion consequence into two parts: direct de-industrialisation and indirect de-industrialisation.

Direct de-industrialisation

Labour, if it is nomadic, moves out of the lagging sector and into the flourishing sector. In this instance, the non-tradable sector is non affected. An grasp of the currency is non required. Therefore, the existent exchange rate corsets stable.

Indirect de-industrialisation

Labour moves out of the non-tradable sector and into the flourishing sector. This creates an extra demand for the non-tradable sector in add-on to the disbursement consequence, and consequences in an extra existent grasp. This will travel labour about of the lagging sector and into the non-tradable sector, beef uping the de-industrialisation which consequences from the disbursement consequence. The combination of the two, which make labour traveling from the dawdling sector to the non-tradable sector, is called the indirect de-industrialisation.

The resource motion consequence merely takes topographic point if labor is nomadic, and will travel between the different sectors. However, the oil sector uses a comparatively low sum of labor. Furthermore, the labour mobility in Kazakhstan is assumed to be low. Therefore, Kazakhstan will merely marginally be affected by the resource motion consequence.

The disbursement consequence appears irrespective of whether labor is either nomadic or non. This consequence will come into force, due to a rise in the aggregative demand. The aggregative demand has risen since a higher oil monetary value generates higher rewards and/or net incomes.

Table 1: Overview of the resource motion consequence and disbursement consequence:

End product

Employment

Wage

Monetary value

Spending Consequence

Booming sector

+

World monetary value

Laging sector

+

World monetary value

Non-tradable sector

+

+

+

+

Resource Movement Effect

Booming sector

+

+

+

World monetary value

Laging sector

+

World monetary value

Non-tradable sector

+

+

Combined

Booming sector

Undetermined

Undetermined

+

World monetary value

Laging sector

+

World monetary value

Non-tradable sector

Undetermined

Undetermined

+

+

By uniting the two effects, the Dutch Disease hypothesis assumes the undermentioned consequences to go on due to a roar: an grasp of the existent exchange rate ( 1 ) , a likely though equivocally addition of the end product of the non-tradable goods sector ( 2 ) , an unambiguous diminution in the end product and employment of the lagging sector ( 3 ) , a bead in the exports of the lagging sector ( 4 ) , and, if labour is nomadic, an addition in the overall pay degree ( 5 ) . It seems likely that ( 4 ) a bead in the exports of the dawdling sector happens due to presence of ( 3 ) a diminution in the production of the lagging sector, but this non needfully hold to be the instance. As Stijns ( 2003 ) points out, the production of the lagging sector could increase while the export decreases. This could go on if, due to a resource roar, the demand for the lagging sector domestically grows more than the exports shrink. A bead in the exports of the lagging sector ( 4 ) is necessary for an unambiguous diminution in the end product and employment of the lagging sector ( 3 ) to go on, but non sufficient.

Empirical research has been performed in order to turn out whether the anticipation of the Dutch Disease theory is a right one. Chef and Rogoff ( 2002 ) look into whether the existent exchange appreciates ( 1 ) . Spatafore and Warner ( 1995 ) examine whether the end product of the non-tradable sector goes up ( 2 ) . Stijns ( 2003 ) tests whether it is the instance that the export of the lagging sector diminutions ( 4 ) . Chen and Rogoff ( 2002 ) show that the existent exchange did appreciate ( 1 ) in Australia, Canada, and New Zealand. These are all states in which minerals attribute to a important portion of the entire export. It must be noted that they investigated merely three mineral-rich states. More research should be done in order to supply information about other resource abundant states. Spatafora and Warner ( 1995 ) control whether it is the instance that the end product of the non-tradable sector additions ( 2 ) . They did so by looking at 18 oil-exporting states in the period of 1973 – 1989. Indeed, for the chief classs of the non-tradable goods sector a ( important ) positive consequence on the end product is present. Stijns ( 2003 ) checks whether the export of the lagging sector diminutions ( 4 ) . Harmonizing to his consequences: “ A one per centum addition in universe energy monetary value is estimated to diminish a net energy exporter ‘s existent fabrication exports by about half a per centum. Similarly, after instrumentality, a one per centum addition in an energy exporting state ‘s net energy exports is estimated decrease the state ‘s existent fabrication exports by 8 per centum. ”

To sum up, an addition of the production of the booming sector leads to increase in the demand for non-tradable goods. This in bend leads to a lessening in the allotment of labor and capital of the lagging sector. Both the disbursement consequence and the resource motion consequence imply that a high gift of natural resources will travel labour into the non-tradable goods sector. Labour which otherwise would hold been employed in the lagging sector. So, if a state experiences a resource roar, the size of the dawdling sector will worsen, and the size of the non-tradable goods sector will increase. The retrenchment of the lagging sector is referred to as the Dutch Disease.

The Dutch Disease does non needfully necessitate to be a existent ‘disease ‘ . By itself, it is non an account why a state would endure from a natural resource expletive. In other words, a contraction in the lagging sector does non necessitate to hold a negative impact on the economic system. A state is merely specialising into the sector in which it has a comparative advantage. If oil monetary values are high, it is merely optimum for resources to travel out of the lagging sector and into the flourishing and non-tradable sector. Furthermore, if the monetary value of oil would remain high everlastingly, the optimum thing for a state to make would be by extinguishing the dawdling sector as a whole and specialise in the production of oil. Why would de-industrialization hold to take to take down economic growing?

Increased volatility

De-industrialization makes the economic system more vulnerable for volatility. Hausman and Rigobon ( 2003 ) show that volatility has a negative relationship on economic growing. An economic system with a little lagging sector faces troubles to accommodate to floor via the mobility of labor. Let us presume an utmost state of affairs with high oil monetary values, and in which the booming sector uses no labor. The dawdling sector will vanish. Now, the non-tradable sector will be the lone employer. Since all labor is employed in one sector the economic system is extremely vulnerable for volatility. Harmonizing to this theory the growing will merely be impermanent lower, since the dawdling sector will retrieve one time the oil monetary value is on a low degree. However, Krugman ( 1987 ) shows that if industries move abroad for a sufficiently long period, they will remain abroad ; even when the favorable conditions abroad have ended.

Production outwardnesss

The chief ground why de-industrialization leads to take down economic growing is due to the fact that the lagging sector is characterized by positive outwardnesss. In comparing to the other sectors, it tends to be more competitory and advanced, and it is characterized by technological spillovers. Three grounds can be given. First of wholly, it is comparatively easy for a house to come in the lagging sector. This is the instance, since the lagging sector is exempted from holding to pay big rents. This improves competition, and, hence, efficiency. Second of all, the lagging sector is more unfastened to invention than the flourishing sector. The production of fabrication merchandises has more room for invention. Third of all, the dawdling sector comes along with perpendicular every bit good as horizontal spillovers ( e.g. acquisition by making ) . I will explicate these grounds in more item in the undermentioned portion.

Backward and frontward linkages effects

Hirschman ( 1958 ) introduced the construct of backward and forward linkages effects of industries. The first consequence relates to derived demand. The 2nd consequence relates to the use of end product. The entire linkage consequence can be interpreted as the chance that the constitution of industry I will take to the constitution of n extra industries J.

The backward linkages consequence

The freshly established industry I requires the input merchandise Y. This merchandise is being produced by houses belonging to industry J. Therefore, the addition of the production of a downstream maker present in industry I gives rise to the production of a upstream maker nowadays in industry J.

The forward linkages consequence

The freshly established industry I produces the end product merchandise omega. This merchandise is being used as the input merchandise by houses belonging to a, possible new, industry k. Therefore, the addition of the production of a maker nowadays in industry I gives rise to the production of a downstream maker nowadays in, a possible new, industry omega.

The good linkage effects of an export sector to the economic system as a whole are considered to be little. In the Core theoretical account, production in the lagging sector, as opposed to the booming sector, will intend a division of labor in a more complex manner, and hence, a higher criterion of life. Therefore, a roar diminishes the backward and forward linkages effects.

Learning-by-doing

Matsuyama ( 1992 ) presents a theoretical account incorporating of two sectors: the agricultural sector, and the fabrication sector. The productiveness of the fabrication sector rises over clip, due to larning by making. An addition in agricultural productiveness will travel labour out of the fabrication sector. This leads to a lessening in the productiveness of fabrication and, hence, in lower economic growing. By using the same logic for the Core theoretical account, we will stop up with a decreasing economic growing. The disbursement consequence and the resource traveling consequence will switch labor out of the lagging sector, and into the non-tradable sector. The learning-by-doing consequence of the non-tradable sector is smaller compared to the lagging sector. This manner the displacement of labor will take down entire economic growing.

The Dutch Disease in Kazakhstan

I will look into whether the Dutch Disease is present by executing a Granger causality trial, and by comparing the Real Exchange Rate – with and without oil exports – of Kazakhstan with other states. By doing a comparing between the economic growing and economic development I will look into whether Kazakhstan is likely to endure from the natural resource expletive. This would intend that the economic system of Kazakhstan suffers from bring forthing minerals like oil.

Granger causality trial

This analysis of the presence of the Dutch Disease in the economic system of Kazakhstan is performed based on the Granger causality trial. This methodological analysis records whether the predating values of X ( in our instance oil ) can explicate the development of the wining values of Y ( another sector ) . The Granger causality trial is the strongest attack I use. It checks whether the one variable influences the other. Using this method I can prove whether the production of oil influences other sectors of the economic system. With a 10 % assurance interval I will look into of the production of which, if any, sectors are harmed by the production of oil. With this method I prove whether we can province that the Dutch Disease is present in Kazakhstan, and whether the presence has a large impact on the economic system or non.

Real Exchange Rate

A characteristic of the Dutch Disease is the grasp of the existent exchange rate. An grasp of the national currency is necessity for the Dutch Disease to be present. Therefore, I shall do a comparing between the existent exchange rate including oil trade and the existent exchange rate excepting oil trade. An grasp in the exchange due to oil trade will negatively act upon the other sectors. These sectors might confront a diminution of export, since their merchandises become more expensive for foreign states. The grasp of the existent exchange rate is a feature of the Dutch Disease. This comparing does non turn out the being of the Dutch Disease, but it shows whether the symptoms are present.

Economic Growth vs. Economic Development

An addition in the production of oil generates a higher GDP, increasing the economic growing. However, if merely a little part of the society additions benefits from the oil production so the overall economic development stays stable or might even decrease. This job is known as the natural resource expletive. We can mensurate economic growing by looking at the GDP per capita. Economic development can be measured by looking at the Human Development Index ( HDI ) . The HDI is an index published by the United Nations Development Programme. The HDI compares the life anticipation at birth, grownup literacy rate, instruction, and GDP per capita. A state with a much lower degree of HDI in comparing with the degree of GDP per capita is likely to endure from the natural resource class.

Consequences of the research

Does Kazakhstan endure from the Dutch Disease?

Granger causality trial

The Granger causality trial checks whether the one variable influences the other. Using this method we can prove whether the production of oil sector influences other sectors of the economic system. The first differences of the variables have been used in order for the remotion of the non-stationary nature of the clip series informations. The survey is based on informations of the old ages 1991 until 2008. Kudebayeva ( 2003 ) based a similar research on the chief export trade goods of Kazakhstan for the old ages 1990 until 2002. She did so by look intoing for the period 1990 – 2002, and of the period 1996 – 2002. In order to compare my consequences with her Granger causality trial consequences, I will take the period 1991 – 2008 into history, every bit good as the period 1996 – 2008.

The computations have been performed by utilizing both a slowdown of 1, and a slowdown of 2. A slowdown of 1 agencies that in the computation we are used the current period ( T ) and the old period ( t-1 ) . A slowdown of two 2 agencies we are utilizing the current information ( T ) , and the old periods ( t-1 ) and ( t-2 ) . For this trial we use the void hypothesis: The production of natural oil does non Granger do the production of sector “ Ten ” . A assurance degree of 10 % has been used in order to reject the hypothesis.

Table 2: Granger causality trial between the oil sector and other sectors for the period 1990 – 2002

Sample: 1990 – 2002

Null Hypothesis

Slowdowns

Probability

DOIL does non Granger Cause DGrain

1

0.0957

DOIL does non Granger Cause DGrain

2

0.0697

Table 3: Granger causality trial between the oil sector and other sectors for the period 1996 – 2002

Sample: 1996 – 2002

Null Hypothesis

Slowdowns

Probability

DOIL does non Granger Cause DGrain

1

0.0346

DOIL does non Granger Cause DRcopp

1

0.0676

DOIL does non Granger Cause DRometal

1

0.1013

DOIL does non Granger Cause DRometal

2

0.0900

Research based on informations of the old ages 1990 – 2002

This research is based on the chief export trade goods of Kazakhstan. These chief export trade goods are natural oil, refined Cu, rolled ferric metals, and grain. The consequences of the research are shown in table 2, and table 3.

For the period 1990 – 2002:

The hypothesis saying that the production of oil does non act upon the production of grain ( DGrain ) can be rejected. By both a slowdown of 1 ( 9.57 % ) , and a slowdown of 2 ( 6.97 % ) we obtain a per centum below the 10 % .

For the period 1996 – 2002:

The hypothesis saying that the production of oil does non act upon the production of grain ( DGrain ) , refined Cu ( DRcopp ) , rolled ferric metals ( DRometal ) can be rejected. If we use a slowdown of 1, we obtain for both grain ( 3.46 % ) , and refined Cu ( 6.76 % ) a per centum below the 10 % assurance degree. Furthermore, if we use a slowdown of 2 we obtain for involute ferric metals ( 9.00 % ) a per centum below the 10 % .

By looking at both periods we reject the void hypothesis thesis for the undermentioned three sectors: grain, refined Cu, and rolled ferric metals. Therefore, we conclude that it is impossible to claim the Dutch Disease is non present in Kazakhstan.

Table 4: Granger causality trial between the oil sector and other sectors for the period 1991 – 2008

Sample: 1991 – 2008

Null Hypothesis

Slowdowns

Probability

DOIL does non Granger Cause DGrain

1

0.0090

DOIL does non Granger Cause DGrain

2

0.0151

DOIL does non Granger Cause DRcopp

1

0.6477

DOIL does non Granger Cause DRcopp

2

0.7973

DOIL does non Granger Cause DCereal

1

0.0044

DOIL does non Granger Cause DCereal

2

0.0539

DOIL does non Granger Cause DEnergy

1

0.0012

DOIL does non Granger Cause DEnergy

2

0.0158

DOIL does non Granger Cause DMining

1

0.2104

DOIL does non Granger Cause DMining

2

0.0971

DOIL does non Granger Cause DCoal

1

0.0147

DOIL does non Granger Cause DCoal

2

0.1403

DOIL does non Granger Cause DOcopper

1

0.0893

DOIL does non Granger Cause DOcopper

2

0.1549

Beginning: The trial consequences are based on informations published by The Agency of Statistics of the Republic of Kazakhstan ( www.stat.kz )

Table 5: Granger causality trial between the oil sector and other sectors for the period 1996 – 2008

Sample: 1996 – 2008

Null Hypothesis

Slowdowns

Probability

DOIL does non Granger Cause DGrain

1

0.2946

DOIL does non Granger Cause DGrain

2

0.3428

DOIL does non Granger Cause DRcopp

1

0.0345

DOIL does non Granger Cause DRcopp

2

0.2192

DOIL does non Granger Cause DCereal

1

0.0918

DOIL does non Granger Cause DCereal

2

0.0539

DOIL does non Granger Cause DEnergy

1

0.0633

DOIL does non Granger Cause DEnergy

2

0.0158

DOIL does non Granger Cause DMining

1

0.1811

DOIL does non Granger Cause DMining

2

0.0971

DOIL does non Granger Cause DElectricity

1

0.4323

DOIL does non Granger Cause DElectricity

2

0.0833

DOIL does non Granger Cause DOchromite

1

0.0769

DOIL does non Granger Cause DOchromite

2

0.2236

Beginning: The trial consequences are based on informations published by The Agency of Statistics of the Republic of Kazakhstan ( www.stat.kz )

Research based on informations 1991 – 2008

I performed a similar research with more recent information in order to look into whether the same decision is still valid for Kazakhstan. I expanded the probe by utilizing non merely the information of the production of the chief export trade goods of Kazakhstan, but by utilizing informations of any big production sector of Kazakhstan. Furthermore, I included the entire production of the whole excavation industry ( DMining ) to see whether this industry as a whole is affected by the production of natural oil. With the freedom of the production of grain, and refined Cu I did non include any merchandise which is non proven to be significantly affected by the oil production.The consequences of the research are shown in table 4, and table 5.

For the period 1991 – 2008:

It can still be concluded that it is impossible to claim that the production of natural oil does non act upon the production of grain. By both a slowdown of 1 ( 0.9 % ) , and a slowdown of 2 ( 1.51 % ) we obtain a per centum far below the assurance degree of 10 % . However, the same can no longer be concluded for refined Cu. By both a slowdown of 1 ( 64.77 % ) , and a slowdown of 2 ( 79.73 % ) we obtain a per centum far above the assurance degree.

Now, we will spread out the research to the production of cereal and vegetable flour ( DCereal ) , thermic energy ( DEnergy ) , mining ( DMining ) , coal ( DCoal ) , Cu ore ( DOcopper ) . If we use a slowdown of 1, for the undermentioned sectors we obtain a per centum below the assurance degree: cereal and vegetable flour ( 0.44 % ) , thermic energy ( 0.12 % ) , coal ( 1.47 % ) , and Cu ore ( 8.93 % ) . By utilizing a slowdown of 2, we conclude that the production of cereal and vegetable flour ( 5.39 % ) , thermic energy ( 1.58 % ) , and excavation ( 9.71 % ) are influenced by the production of natural oil.

For the period 1996 – 2008:

In contrast to what we would anticipate, the production of grain is no longer influenced by the production of natural oil ( 29.46 % by utilizing a slowdown of 1, 34.28 % by utilizing a slowdown of 2 ) . This consequence is counterintuitive, since grain is affected in all other periods. Furthermore, the production of refined Cu is affected ( 3.45 % by utilizing a slowdown of 1 ) a sector which showed no mark of being affected for the period 1991 – 2008. Other sectors which are affected by utilizing a slowdown of 1 are: cereal and vegetable flour ( 9.18 % ) , thermic energy ( 6.33 % ) , chromite ore ( 7.69 % ) . The undermentioned sectors are influenced by utilizing a slowdown of 2: cereal and vegetable flour ( 5.39 % ) , thermic energy ( 1.58 % ) , mining ( 9.71 % ) , and electric power ( 8.33 % ) .

By looking at both periods we reject the void hypothesis thesis for the undermentioned nine sectors: grain, refined Cu, cereal and vegetable flour, thermic energy, excavation, coal, chromite ore electric power, and Cu ore. Therefore, we conclude that it is impossible to claim the Dutch Disease is non present in Kazakhstan.

Overall, the two performed Granger causality trials prove that it is impossible to claim that the Dutch Disease is non present in Kazakhstan. The first trial does so by the undermentioned three sectors: grain, refined Cu, and rolled ferric metals. The 2nd trial does the same with the undermentioned nine sectors: grain, refined Cu, cereal and vegetable flour, thermic energy, excavation, coal, chromite ore electric power, and Cu ore. Both trials conclude that is impossible to claim for grain every bit good as refined Cu that they are non enduring from the Dutch Disease. The consequences of both trials point strongly towards the presence of the Dutch Disease in the chief export sectors of Kazakhstan.

Real Exchange Rate

Both graph 1, and graph 2 show a comparing of Kazakhstan and other states, comparing the existent exchange rate including oil trade and the existent exchange rate excepting oil trade. Graph 3 shows a combination of the two. An grasp in the exchange due to oil trade will negatively act upon the other sectors. These sectors might confront a diminution of export, since their merchandises become more expensive for foreign states. An grasp of the existent exchange rate due to the influence of oil trade is a feature of the Dutch Disease.

Graph 1: A comparing of the existent exchange rate of Kazakhstan with the existent exchange rates of the CIS states

Beginning: The graph is based on informations published by The Agency of Statistics of the Republic of Kazakhstan ( www.stat.kz )

Commonwealth of Independent States ( CIS )

Comparing the existent exchange rate with the exchange rates of the CIS states ( Belarus, Kyrgyz Republic, Russian Federation, and Ukraine ) we see that the exchange rate including oil trade lies above the exchange rate including oil trade. Until 2003 both graphs are traveling together. As of the 2nd half of 2003 the existent exchange rate including is somewhat higher than the existent exchange rate excepting oil. This suggests that Kazakhstan is likely to endure from the Dutch Disease.

Graph 2: A comparing of the existent exchange rate of Kazakhstan with the existent exchange rates of non-CIS states

Beginning: The graph is based on informations published by The Agency of Statistics of the Republic of Kazakhstan ( www.stat.kz )

Other states ( Non-CIS states )

However, if we compare Kazakhstan with non-CIS states ( UK, Germany, Italy, Netherlands, Finland, France, Hungary, Latvia, Lithuania, Poland, Czech Republic, Switzerland, Estonia, Iran, China, Korea, Turkey, Japan, USA, and offshore districts ( British Bermuda Islands, British Virgin Islands ) we get a different image. The exchange rate including oil trade lies below the exchange rate including oil trade. Until the beginning of 2002 both graphs are traveling together. As of the 2nd half of 2002 the existent exchange rate excepting oil is clearly much higher than the existent exchange rate excepting oil. This suggests the absence of the Dutch Disease in Kazakhstan.

Graph 3: A comparing of the existent exchange rate of Kazakhstan with the existent exchange rates of both the non-CIS states and CIS states

Beginning: The graph is based on informations published by The Agency of Statistics of the Republic of Kazakhstan ( www.stat.kz )

Entire

If we combine both informations we get a graph with in which the exchange rate including oil trade ballads above the exchange rate including oil trade. Until 2005 both graphs are traveling together. As of the 2nd half of 2005 the existent exchange rate including oil is at a higher degree than the existent exchange rate excepting oil. Therefore, if we consider the entire image Kazakhstan is likely to endure from the Dutch Disease.

Overall, Kazakhstan faces an grasp of the existent exchange rate due to the trade of oil, a characteristic of the Dutch Disease. The comparing of the existent exchange rate with the CIS states does demo an grasp of the national currency due to oil trade. However, the comparing with the non-CIS states does belie this decision. If we combine the two, and expression at the complete image for Kazakhstan, than this characteristic of the Dutch Disease is clearly present. However, since the consequences are beliing each other, our decision is non a strong one.

Human Development Index

The Human Development Index ( HDI ) tests the overall quality of life.[ 4 ]It does so by looking at the life anticipation at birth, the grownup literacy rate ( % aged 15 and supra ) , the combined gross registration ratio for primary, secondary and third instruction ( % ) , and the GDP per capita ( PPP US $ ) . By comparing the economic growing ( GDP per capita ) with the economic development ( HDI ) we can look into whether a high GDP per capita consequences in a in a better overall quality of life.

States with a low rank of the HDI, and a high rank of GDP per capita are likely to endure from the natural resource expletive. The Human Development Reports ranks states harmonizing to their HDI and their GDP per capita. In order to look into for the presence of the natural resource expletive, we will deduct the HDI rank from the GDP per capita rank.

The undermentioned consequences originate by look intoing the consequences for OPEC states ( except for Iraq, due to a deficiency of informations ) : Algeria ( -22 ) , Angola ( -33 ) , Ecuador ( 21 ) , Iran ( -23 ) , Kuwait ( -8 ) , Libya ( 4 ) , Nigeria ( 4 ) , Qatar ( -12 ) , Saudi Arabia ( -19 ) , the United Arab Emirates ( -12 ) , and Venezuela ( 14 ) . Algeria, Angola, Iran, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates all have a figure far below zero, proposing that the Dutch Disease is present in these states.

Ecuador and Venezuela face a high positive figure. Both states are under a socialist regulation. These socialist governments try to better the state of affairs for the hapless, thereby increasing the overall HDI. Furthermore, due to high revenue enhancements of a socialist government the rank of the GDP is comparatively low. For illustration, the communistic state Cuba, which has an unnaturally low GDP, has a positive GDP rank subtraction HDI rank figure of 43. A low GDP and a high HDI are the account for the high positive figure of Ecuador and Venezuela. Therefore, this method is inconclusive whether the natural resource expletive is present in either Ecuador or Venezuela.

The positive Numberss of Nigeria and Libya are more hard to explicate. Their moderate positive Numberss suggest that the rank of both their GDP and HDI are, more or less, in line with each other. This implies that these states do non endure from the natural resource expletive. Further research should be done in order to explicate the consequences of both Nigeria and Libya.

Kazakhstan is extremely influenced by the Russian Federation. Therefore, we shall take a expression at the consequences of the Russian Federation. If Russia has a negative figure and is likely to endure from the natural resource expletive, so Kazakhstan is likely to endure from the natural resource expletive excessively. Indeed, Russia has a negative figure of 9. This figure implies the presence of the Dutch Disease in Russia.

In order for the trial to be every bit accurately as possible we shall execute an expanded version of the described trial. For Kazakhstan we shall execute the trial for each twelvemonth, as of 1995, in which the Human Development Report has been published.

Graph 4: The GDP per capita rank minus the HDI rank for Kazakhstan

Beginning: The graph is based on informations from the Human Development Reports as published by the United Nations Development Programme

Graph 5: The GDP per capita rank, and the HDI rank for Kazakhstan

Beginning: The graph is based on informations from the Human Development Reports as published by the United Nations Development Programme

From 1995 until 2000 Kazakhstan had a high positive difference between the GDP per capita rank and the HDI rank. In these old ages, the lowest figure was reached in 1996 ( 6 ) , and the highest in 1995 ( 15 ) . From 1995 until 1997 Kazakhstan suffered from a steep diminution in both the GDP per capita and HDI. This is due to the troubles the state faced of passage from a planned economic system to a market-oriented economic system. In the old ages 1998 and 1999 the degree of the HDI recovered. The same happened for the degree of GDP degree from 1998 until 2001. From 1995 until 2001, due to the high fluctuations of the degrees of GDP and HDI, the information in is undependable.

As of 2001 both the GDP per capita and HDI stabilise ( doing the informations more dependable ) . Therefore, for this trial we shall take the consequences as of 2001 into history. With the exclusion of 2004 ( a figure of 4 ) and 2007/2008 ( a figure of 1 ) , Kazakhstan had a negative GDP per capita subtraction HDI rank. The lowest figure ( -5 ) was reached in both 2003 and 2006. However, all Numberss stay comparatively close to the zero-line.

Overall, this trial shows no clear mark of the presence of the natural resource in Kazakhstan. In five of the seven old ages Kazakhstan had a negative figure, but merely in 2003 and 2006 the figure was comparatively far below nothing. Therefore, the consequences are non strong plenty to demo a clear signal of the presence of the natural resource expletive.

Decision

A Granger causality trial was performed in order to prove for the presence of the Dutch Disease in Kazakhstan. This trial checks whether it is possible to claim that the Disease is present in Kazakhstan. It proved that it is impossible to claim that the Dutch Disease is non present in Kazakhstan. Therefore, the consequences point strongly towards the presence of the Dutch Disease in the chief export sectors of Kazakhstan. A characteristic of the Dutch Disease is an grasp of the national currency due to the export of oil. Therefore, we wanted to cognize whether the tenge, the national currency of Kazakhstan, has appreciated due to the trade of oil. For this ground, we compared the existent exchange rate including and excepting the oil trade. Overall, Kazakhstan faced an grasp of the existent exchange rate, but non all informations clarifies this. The consequences do demo an grasp of the national currency, but the consequences are non peculiarly strong. However, we can reason that the currency did appreciate due to the export of oil. By looking at both trials, it is safe to reason that Kazakhstan does endure from the Dutch Disease.

We went farther by seting the economic growing and the economic development of Kazakhstan side to side. A positive difference between the two points implies the presence of the natural resource expletive. This trial showed no clear mark of the presence of the natural resource. Kazakhstan is likely to endure from the Dutch Disease, but it goes excessively far to reason that Kazakhstan suffers from holding oil. Kazakhstan benefits from holding oil, but it should set in more attempt to decrease the possible injury of the Dutch Disease.

Further research

The Granger causality trials showed whether the production of oil influences the production of other sectors. Similar trials should be performed to look into whether the production of other minerals ( e.g. natural gas ) can besides be found to be accountable for the presence of the Dutch Disease in Kazakhstan.