by Oomes and Kalcheva (2007) for Russia, Lartey (2008) for Philippines found Dutch Disease effects. By contrast, Ogun (1995) for Nigeria, Nyoni (1998) for Tanzania, Sackey (2001) for Ghana and Ouattara and Strobl (2003) for a panel of CFA countries, found that aid flows were associated with real depreciation and found no Dutch Disease effects. This paper uses panel series data to explore the evidence for Dutch Disease effects from increased foreign inflows in six small open economies in the South-East Asia. The countries including Pakistan, Bangladesh, India, Indonesia, Philippines and Malaysia, display a substantial degree of economic heterogeneity, and a corresponding level of heterogeneity in their response to foreign inflows can also be seen. The paper is organized as follows: section 2 presents some stylized facts, section 3 illustrates methodology and model specification, section 4 discusses empirical results and conclusions are given in section 5.
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54Dutch Disease Investigated: Empirical Evidence from Selected South-East Asian Economies Some Stylized Fact The countries of analysis are located in the southern and eastern corner of the continent of Asia. The key economic indicators of these economies show an increase in the GDP, GDP per capita and trade volume in the 1990s and 2000s. The average annual GDP growth is about 5.1% during 1981-2007. These economies are divided into tradable (agriculture, industry) and non-tradable (services) sectors. In terms of foreign inflows, these economies were relatively low in 1980s. The average yearly receipts were $5.1 billion during the period of analysis. The real exchange rates have also been appreciated in the years of concern. The annual growth rate of tradable sector on average remained at 4.4% whereas non-tradable sector achieved 5.8% during the period of analysis. The employment share in the tradable sector has been reduced from 84% to 55% and employment in the services sector has been increased from 16% to 55%. It is important to note that aggregate foreign inflows are insignificant in estimating Dutch Disease effects so we disaggregate foreign inflows into three main categories (FDI, REM, and ODA). Before describing the econometric model, we briefly review historical trend of foreign inflows and real exchange rate of selected countries. These facts are discussed in detail below and figures are given in the appendix: A) Historical Trend of Foreign Capital Inflows Developing countries have always been welcoming foreign inflows. Foreign direct investment (FDI) has been the most important part of foreign capital5, since its inception, however the success has not been great as for six selected countries in South-East Asian history. The amount of FDI has been meager, roughly receiving $264.4 billion during last 27 years. In total it has grown but it had never been more than 1% of real GDP during the period of analysis among Pakistan, India, Bangladesh and Indonesia. Needless to say, one of the most important sources of external capital for the countries of analysis is foreign remittances. Figure 1 establishes the importance of remittances. In early
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