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This paper investigates the impact of long-run terms-of-trade shocks. Analytically, we show that, if capital goods are largely importable or the labor supply is sufficiently elastic, then natural-resource booms increase aggregate investment and worsen the current account, but Dutch ‘Disease’ effects are weak. We then examine 18 oil-exporting developing countries during 1965-89. Favorable terms-of-trade shocks increase investment and (especially government) consumption, but reduce medium-term savings; hence, the current account deteriorates. Nontradable output increases, in response to real appreciations, but Dutch Disease effects are strikingly absent. Investment, consumption, and nontradable output respond more to a terms-of-trade decline than to an increase.

Exports and Imports --- Macroeconomics --- Economic Theory --- Natural Resources --- Open Economy Macroeconomics --- Economic Growth of Open Economies --- Empirical Studies of Trade --- Agricultural and Natural Resource Economics --- Environmental and Ecological Economics: General --- Macroeconomics: Consumption --- Saving --- Wealth --- Energy: Demand and Supply --- Prices --- Resource Booms --- International economics --- Environmental management --- Economic theory & philosophy --- Terms of trade --- Natural resources --- Consumption --- Oil prices --- Dutch disease --- International trade --- Environment --- National accounts --- Economic theory --- Economic policy --- nternational cooperation --- Economics --- Economic forecasting --- United Arab Emirates