Editing Balassa–Samuelson effect (section)

=== Dutch disease ===
{{Further|Dutch disease}}

Capital inflows (say to the [[Netherlands]]) may stimulate [[currency]] appreciation through demand for [[money]]. As the RER appreciates, the competitiveness of the traded-goods sectors falls (in terms of the international price of traded goods).

In this model, there has been no change in real economy productivities, but money price productivity in traded goods has been exogenously lowered through currency appreciation. Since capital inflow is associated with high-income states (e.g. [[Monaco]]) this could explain part of the RER/Income correlation.

[[Yves Bourdet]] and [[Hans Falck]] have studied the effect of [[Cape Verde]] remittances on the traded-goods sector.<ref>[http://virtualcapeverde.net/news2/modules/Downloads/docs/emigration_dutch_disease.pdf Emigrants' Remittances And Dutch Disease<!-- Bot generated title -->] {{webarchive |url=https://web.archive.org/web/20050513123607/http://virtualcapeverde.net/news2/modules/Downloads/docs/emigration_dutch_disease.pdf |date=May 13, 2005 }}</ref> They find that, as local incomes have risen with a doubling of [[remittance]]s from abroad, the Cape Verde [[Exchange rate|RER]] has appreciated 14% (during the 1990s). The export sector of the Cape Verde economy suffered a similar fall in productivity during the same period, which was caused entirely by capital flows and not by the BS-effect.<ref group=note>The BS-hypothesis would still explain the Cape Verde price index rise in its own terms if the incomes from rising [[emigrant]]'s remittances were counted as local traded-goods 'productivity' increases. In their study of [[Cape Verde]], Bourdet & Falck found that the export sector strengthened during the 1990s period of currency appreciation, which might support the theory of "Competitive Appreciation" mentioned in the footnote above</ref>