Booming‐sector economic activity in Paraguay 1973–86: A case of dutch disease?

The primary purpose of this study is to investigate the applicability of the ‘Dutch Disease’ model as a means of explaining the changing sectoral composition of output for Paraguay in the period 1973–86. The consequences of ‘booming‐sector’ activity for: (1) the distribution of income as it affects wages; and (2) the (in)stability of export earnings for Paraguay are examined. The Dutch Disease model predicts that the consequences of booming activity will include a contraction of non‐booming sector activity as well as a real appreciation of the exchange rate. These outcomes are tested in several single and multiple‐equation estimable models for the case of Paraguay.