Research/academic paper

Oil Wealth and Potential Dutch Disease Effects in Uganda

“Based on the hypothesis that different spending options from oil inflows are likely to generate different Dutch disease effects, this study employs a dynamic Computable General Equilibrium Model to investigate how different spending option targeted at particular sectors affect the competitiveness of traded goods sector in Uganda. The results suggest that there would indeed be winners and losers under these various scenarios depending on what the additional resources of oil are used for. As expected, increased oil resources would lead to significant appreciation of the currency in all scenarios. Also, as the theory predicts, we find that the demand for non-tradables (mainly the services sector) increases. However, for simulations where oil
resources are used for productive activities, we find that the losses in competitiveness would be compensated for by growth in other sectors. For instance, directly investing in agriculture where the bulk of the population is employed, would lead to significant productivity gains in the sector resulting into significant poverty reduction for the rural poor. Likewise, using oil revenues to boost spending on education and health, would increase labour productivity of both the urban and rural population leading to both short and long-term growth. While investment in infrastructure could reinforce the Dutch disease effects given its strong effects
on the appreciation of the exchange rate and the implications for higher demand for nontradables, this is compensated for by the positive externalities generated for other sectors by having better public goods.”