Oil Stock Discovery and Dutch Disease

We set out a model of a small open economy exporting oil and a traditional ex- portable in return for produced capital. The small open economy also has local produc- tion of a non-traded good. We rst observe that the size of the traditional export sector declines with an exogenous increase in the countrys oil stock. Strong Dutch disease (SDD) nvolves a net diminution in produced capital in use in the small open econ- omy after the oil discovery shock. SDD turns on the exportable sector being relatively capital intensive