Central Bank of Armenia, the National Statistical Service Republic of Armenia (NSSRA), World Bank Database, Asian Development Bank and IMF sources. Chapter 2: Diagnostic Analysis The literature review revealed theory behind Dutch Disease, such that a small open economy would most likely exhibit spending or movement effect behavior (Corden and Neary, 1982). Taking into consideration the evidence from countries presenting with DD (IMF, 2005) a 5 step diagnosis is conducted in the paper to consider Armenia a candidate of the Dutch Disease. The 5 steps are REER appreciation analysis, inflation rate, manufacturing sector decline, labour shifts analysis and the dependence on natural resources or country’s foreign aid. Step 1. Real Exchange Rate Trends Real exchange rate is the ratio of prices for tradable and non-tradable goods, where tradable goods are those that can be sold at another location other than the domestic country and non-tradable good is sold in the domestic country only either due to high transportation
Central Bank of Armenia, the National Statistical Service Republic of Armenia (NSSRA), World Bank Database, Asian Development Bank and IMF sources. Chapter 2: Diagnostic Analysis The literature review revealed theory behind Dutch Disease, such that a small open economy would most likely exhibit spending or movement effect behavior (Corden and Neary, 1982). Taking into consideration the evidence from countries presenting with DD (IMF, 2005) a 5 step diagnosis is conducted in the paper to consider Armenia a candidate of the Dutch Disease. The 5 steps are REER appreciation analysis, inflation rate, manufacturing sector decline, labour shifts analysis and the country’s dependence on natural resources or foreign aid. Step 1. Real Exchange Rate Trends Real exchange rate is the ratio of prices for tradable and non-tradable goods, where tradable goods are those that can be sold at another location other than the domestic country and non-tradable good is sold in the domestic country only either due to high transportation