Is Zambia suffering from the Dutch Disease? A Qualitative Study Examining the Effects of a Shock in the Global Copper Price on the Non-booming Sector in Zambia

August Isacsson

Student thesis: Master thesis

Abstract

In this thesis, the global copper price influence on the real effective exchange rate and noncopper related exports is examined. The analysis is based on the Dutch Disease theory that a commodity boom will negatively impact export in the non-booming sector, as a commodity boom usually implies a real exchange appreciation. The choice to study copper is based on the fact that it has recently gone through a booming period. Copper constitutes 73,8% of Zambia’s total exports, yet the Zambian economy is small enough not to affect the global copper price, which motives the choice to study Dutch Disease in Zambia. By the use of a structural vector autoregression (VAR) model, a shock in the global copper price effect on the real effective exchange rate and the non-booming sector export can be identified. In the model, the copper price is assumed to be endogenous. The structural VAR variables are times series data between January 1997 to March 2019. Additionally, the relationship between the variables is also assessed through a Granger Causality test. The results indicate that Zambia does exhibit signs of Dutch Disease. Still, it cannot be concluded that Dutch Disease is causing any real negative effect on the economic growth in its non-booming sector. More specifically, the results indicate that a shock in the global copper price influences the real effective exchange rate in Zambia significantly positively, but that the same shock does not influence the export of the nonbooming sector at a significant level.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2021
Number of pages47
SupervisorsPontus Rendahl