ANNOUNCEMENTS
India and Australia are endowed with enormous reserves of minerals and ores. Of all ores, these two economies are the leading exporters of two prime base metals; Iron and Aluminium which are heavily traded in international markets. This paper aims to diagnose whether symptoms of Dutch Disease are present in these economies due to exogenous shocks in the world annual real prices of both the commodities by employing a Vector Auto-Regression (VAR) model with Impulse response functions for the period from 1980- 2016. Followed by VAR, the study computes Revealed Comparative Advantage Index (RCAI) for the two selected commodities in order to trace the changing fundamentals of the export basket of these economies when exogenous shocks in prices of iron ore and aluminium occur. The results of the analysis suggest that both iron ore and aluminium are responsible for Dutch Disease effects in India by adversely affecting growth rate of Gross Value Added (GVA) by the Services sector. On the contrary, it appears that only iron ore is responsible for Dutch Disease effects in Australia. The strategic policy implications in order to manage the positive impact of boom and its repercussions on other sectors could be fiscal adjustments by dampening aggregate demand or monetary expansion leading to fall in interest rates so that the economy could gain from the benefits of a booming sector and manage its repercussions on the lagging sector. Out of the two policies, the policy chosen by the policymakers will depend upon the economic situations which the country is facing at that time.
Key Words: Dutch Disease, Exports, Real appreciation, Factor Reallocation, Exports, Exogenous price shocks, Comparative Advantage
