Page 1 of 28
Journal for Studies in Management and Planning
Available at http://internationaljournalofresearch.org/index.php/JSMaP
e-ISSN: 2395-0463
Volume 01 Issue 02
March 2015
Available online: http://internationaljournalofresearch.org/ P a g e | 115
The ‘Dutch Disease’ in an Emerging Oil Economy:
Empirical Evidence in the Ghanaian Context
Anthony Yaw Tano
Ag. Head, Department of Development Planning
St. Margaret College, Post Office Box KS 5903, Kumasi, Ghana
E-mail: aytano@smuc.edu.gh; yawtano@yahoo.com, Phone Number: +233 244 040542
ABSTRACT
This study investigated the ‘Dutch
Disease’ hypothesis in the Ghanaian
context by examining the performance of
Ghana’s economy before and after its
recent oil discovery. The study utilized
secondary source data gathered from the
Ghana Statistical Service and the Bank of
Ghana. Using a t test assuming
independent samples of equal variance, the
study came to the conclusion that there
were mixed evidence of the Dutch Disease
effects in Ghana’s emerging oil economy.
On the supply side, the study established
that some sub-sectors of the Ghanaian
economy (such as the crops, livestock,
fishing and manufacturing) had escaped
the Dutch Disease effects which is
inconsistent with the Dutch Disease
hypothesis. However, the forestry and
logging sub-sector and the overall services
sector (comprising Transport, Storage &
Information and Communication;
Government Services; Community, Social
and Personal Services) showed symptoms
of the Dutch Disease effects which is
contrary to the resource movement effect
of the Dutch Disease hypothesis. On the
demand side, the study found out that some
non-food price index (clothing and
footwear; housing and utilities, medical
care and health expenses) showed some
symptoms of the spending effects of the
Dutch Disease. Based on the findings of
the study, it is recommended that the
Government of Ghana lays much emphasis
on areas of the national economy that have
shown decline in performance after the oil
discovery such as the forestry and logging
sub-sector and the overall services sector.
The study also recommends that the
Government of Ghana improves upon its
fiscal discipline by controlling the
spending of windfall oil revenues on non- tradables.
Page 2 of 28
Journal for Studies in Management and Planning
Available at http://internationaljournalofresearch.org/index.php/JSMaP
e-ISSN: 2395-0463
Volume 01 Issue 02
March 2015
Available online: http://internationaljournalofresearch.org/ P a g e | 116
Key words: Dutch Disease, Resource
Movement Effect, Spending Effect, Gross
Domestic Product, Consumer Price Index
INTRODUCTION
Africa is undoubtedly endowed with
enormous natural resources of various
kinds (oil, gold, bauxite, diamond,
manganese, cobalt, timber etc). Some
authors (Olaopa, 2006; Ebegbulem, 2012)
maintain that Africa is perhaps the richest
continent in terms of natural resources.
Given the many development needs and
challenges in Africa, it is expected that the
exploitation of these natural resources
would serve as the catalyst for accelerating
the socio-economic development of the
continent. However, in the midst of plenty,
Africa is generally regarded as less
developed. On the other hand, studies have
shown that some natural resource-poor
countries have achieved much more
economic development than the resource- rich African countries. In his study on
natural resource curse, Frankel (2011)
established that there was no positive
correlation between natural resource
abundance and economic growth in a
sample of countries over a forty-year
period. The paradoxical evidence was that
countries low in natural resources (such as
China and South Korea) had high
economic growth but in contrast, countries
with high natural resource endowment
(such as Gabon, Zambia, Liberia and other
African countries) had low economic
development.
Some African countries are unable to use
their natural resources to accelerate
economic growth and achieve sustained
broad-based development (such as
Diamond in Liberia; Copper in Zambia;
Oil in Nigeria and Gabon). In the case of
oil resources, the Centre for Policy
Analysis (CEPA, 2010) is even more
categorical - “developing country oil
exporters have done less well than
resource poor countries over the past four
decades, especially when one considers the
big revenue gains to the oil exporting
countries since 1973 when oil prices
soared”. In view of this observations, there
were mixed opinions when Ghana
discovered oil in commercial quantities off
the shores of its Western Atlantic Coast in
June, 2007. On the one hand, some were
excited about the oil find in expectation of
the additional revenues that the oil
discovery would provide for the structural
transformation of the Ghanaian economy.
On the other hand, some argued that the
Government of Ghana has not been able to
use the already existing natural resources
(i.e. gold, bauxite, manganese, timber etc)
Page 3 of 28
Journal for Studies in Management and Planning
Available at http://internationaljournalofresearch.org/index.php/JSMaP
e-ISSN: 2395-0463
Volume 01 Issue 02
March 2015
Available online: http://internationaljournalofresearch.org/ P a g e | 117
to transform the economy and on this
basis, the oil discovery would not make
any significant contribution to the national
economy. The latter’s argument is also
related to the observations by CEPA
(2010); Asafu-Adjaye (2010) and Collier
(2012) that the historical evidence of oil
discoveries in Africa is deeply worrying.
In particular, it seems nearly all sub- Saharan African countries rich in oil
resources have shown symptoms of a
phenomenon referred to as the ‘Dutch
Disease’ – a resource boom paradox in
which the development of a natural
resource-based sector (such as the oil
sector) results in an appreciation of the real
exchange rates (i.e. higher prices of non- tradables) and crowding out the non-oil
sectors especially the agriculture and
manufacturing sectors. It is in view of this
puzzling phenomenon that this study
investigated the ‘Dutch Disease’
hypothesis analyzing the performance of
the agricultural, industrial and services
sectors of the Ghanaian economy as well
as the prices of food and non-food items
before and after the discovery of
commercial quantities of oil in June 2007.
PROBLEM STATEMENT
The empirical analysis of the Dutch
Disease has been widely explored in
resource-rich countries elsewhere. Several
countries have shown symptoms of the
Dutch Disease effects but it seems to be a
major problem in oil producing countries
in Africa. See for example the evidence of
the Dutch Disease in Nigeria (Olusi and
Olagunju, 2005; Bature, 2011); Angola
(Collier, 2006; Kyle, 2010), Sudan
(Elbadawi and Kaltani, 2007; Nour, 2011);
Equatorial Guinea (Toto, 2008;
Salomonsson and Sandberg, 2010). Some
studies posit that following its oil find,
Ghana’s economy has begun to show some
symptoms of the Dutch Disease (World
Bank, 2009; CEPA, 2010; Asafu-Adjaye,
2010; Buchberger, 2011). Thus these
studies appear to suggest that following
the recent oil find in Ghana, the
performance of the non-oil sectors
(agriculture and industry) have been
dwindling relative to the performance of
these sectors before the oil find. These
studies also seem to suggest that the prices
of both food and non-food items have
witnessed dramatic increases compared to
the period before the oil discovery. These
observations however appear to be mere
conjecture since it lacks the empirical
evidence to prove the presence or
