Dutch Disease in Macau: Theoretical Modeling, Empirical Diagnosis and Treatments
Date: 2013-05-06
Degree: Doctoral Thesis
Programme: Bachelor of Philosophy
Authors: Susana Margarida Baptista Mieiro
Supervisors: Doctor José Alves, University of Saint Joseph. Doctor Anabela Sérgio, Visiting Professor, University of Saint Joseph
Abstract:
Over the past decade, the economy of Macau has experienced a remarkable metamorphosis triggered by the 2002 gaming liberalization. Western hotel and casino operators entered the scene and brought with them a noteworthy growth in foreign direct investment in the gaming-intensive tourism (GT) sector. In turn, this supply shock was readily fuelled by a surge in visitor arrivals, after the Mainland “Individual Visit” Scheme was implemented in 2003. The inherent and significant expansion in visitor spending in the territory created a demand shock in the GT sector. Alongside this dual-sourced inflow of foreign currency, the territory faced declining industrial production and, naturally, a plunge in its domestic exports of goods. The decline in traditional industry as a result of the boom and prosperity of a “new” economic activity is a symptom of the Dutch Disease (DD).
While Macau’s economic challenges were growing, the association of the DD with Macau’s post-2002 GT era was still nascent and lacking rigorous validation. Hence, this research had the twofold purpose of assessing whether Macau is actually a case of DD and of designing a suitable and feasible strategy to manage the territory’s present economic challenges, ultimately targeting its long-term sustainability.
The initial aim of this research was accomplished by firstly deriving a theoretical model for the DD in Macau under a framework close to the territory’s reality, which considered variable factor endowments. Then, the key testable theoretical derivation was empirically estimated, confirming that the GT boom has been leading to a decline in Macau’s real domestic exports of goods. Cognizant of the economic phenomenon underlying Macau’s current reality, I designed a generic strategy to manage that condition for the general case of the open economy – the DD Treatments Pyramid, which consisted in a priority path for the application of the booming revenues into different types of capital. Afterward, that strategy was applied to the particular case of Macau, fulfilling the second aim of this research. In brief, it was considered that giving priority to the application of the GT revenues to build strong human capital first (by investing in education and health care), and social capital next, is most probably the best insurance policy against the most likely undesired outcomes of the DD in Macau and to promote the territory’s long-term sustainability.
