Dutch Disease, factor mobility, and the Alberta Effect: The case of federations

Abstract

Do reduced costs of factor mobility mitigate Dutch Disease effects to the extent that they are reversed? The case of federations provides an indication they do. We observe resource blessing (curse) effects at the provincial (federal) level, and argue the difference in outcomes stems from the difference in factor mobility costs. We construct a simple tax competition model which shows that if factor mobility costs are sufficiently low, a resource-boom triggers an Alberta Effect that mitigates, and possibly reverses, Dutch Disease symptoms. The paper concludes with empirical evidence for the main implications of the model. © Canadian Economics Association.