The New Zambia blog discusses the recent surge of the local currency. There are fears that this is sign of a Dutch disease: the country's industrial structure could be significantly shifted towards natural resource extraction as exchange rates make other exports impossible. Also, it is hypothesized this would also lead to a loss in remittances (contributions from expatriates) and foreign aid.Zambia is nowadays considered to be a showcase of sound policies. Exchange rate appreciation may be a consequence of this, and it would sad if Zambia would suffer from this. However, there is evidence that foreign aid tends to reward good policy after the fact (Pallage and Robe) and that this is optimal (Isopi and Mattesini). Also, worker remittances are remarkably stable (Buch and Kuckulenz). Not too much to worry about……(read more)
Zambia on the verge of a Dutch disease?
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