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GTAP Resource #6952

"Dutch disease in a new era: a tale of renewable resource dependence and tourism in Bhutan"
by Shutes, Lindsay, Arndt Feuerbacher, Scott McDonald, Melanie Trost and Florian Blum

A major expansion in hydropower capacity is underway in Bhutan, with most of the hydroelectricity exported to India. Hydropower has been the primary driver of growth in recent decades and is set to provide a substantial stream of export revenue in the coming decades. There are concerns as to how this dependence on renewable resource revenue might affect the structure of the economy, and in particular the export-focused tourism sector.
The effect of high growth in an enclaved resource-based sector is well documented. Historically, these ‘Dutch Disease’ effects have been observed in oil rich countries, expanding services and depressing growth in manufacturing in developed countries and agriculture in developing countries. We investigate these effects in the age of renewables: how they manifest in a renewable resource dependent economy and affect the tourism export sector.
The study uses a national (energy) CGE model, based on a 2019 SAM with detailed electricity sectors. The model includes endogenous updating of physical capital stocks and lags between hydropower capital formation and the commissioning of hydropower plants to model multi-year investment projects funded by large foreign investment flows.
We find the expansion of hydropower moves the economy strongly toward hydroelectricity generation and allied industries. The service sector does not expand as in standard Dutch Disease analysis due to the importance of export-led tourism services. The rise in the real exchange rate leads to a contraction in tourism, compounding the movement towards a more concentrated economic base. Bhutan’s strategy of high value, low volume tourism is prudent given this effect, focusing on tourists that are less sensitive to price changes.
We conclude that countries seeking to understand the possible impact of large-scale exports of renewables should aim to mitigate the impact on their export-oriented sectors, whichever part of the economy they are in.

Resource Details (Export Citation) GTAP Keywords
Category: 2023 Conference Paper
Status: Not published
By/In: Presented during the 26th Annual Conference on Global Economic Analysis (Bordeaux, France)
Date: 2023
Version: 1
Created: Shutes, L. (4/14/2023)
Updated: Shutes, L. (6/15/2023)
Visits: 323
- Dynamic modeling
- Model extension/development
- Economic development
- Economic growth
- Trade in services
- Asia (South-Central)

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