This paper by W. Max Corden and J. Peter Neary explores the structural changes in an open economy, focusing on the phenomenon of "Dutch disease," where a booming sector coexists with a declining sector. The authors analyze the medium-run effects of asymmetric growth on resource allocation and income distribution, particularly in cases where the booming sector is extractive (e.g., minerals, natural gas) or technologically advanced (e.g., Ireland, Japan). They use a small open economy model with two traded goods and one non-traded good to examine the effects of a boom in one sector under different assumptions about factor market dynamics. The paper is structured into several sections, each addressing different aspects of the boom's impact. Section I introduces the basic framework and outlines the models to be examined, distinguishing between the resource movement effect and the spending effect. Section II analyzes the effects when labor is the only mobile factor, showing that the boom can lead to direct de-industrialization through the resource movement effect and indirect de-industrialization through the spending effect. Section III considers the case where capital is mobile between manufacturing and services, leading to more complex outcomes, including pre-industrialization and real depreciation. Section IV examines the scenario where capital and labor are mobile between all three sectors, revealing a weak presumption towards de-industrialization due to the direct impact of the resource movement effect and the potential for the spending effect to raise manufacturing output. The authors also discuss other sources of booms, such as technological progress, foreign capital inflows, and changes in energy prices, and their implications for de-industrialization. The paper concludes by summarizing the key findings and their policy implications, emphasizing the importance of understanding the distinction between the resource movement effect and the spending effect in addressing the "Dutch disease" and other structural changes in open economies.This paper by W. Max Corden and J. Peter Neary explores the structural changes in an open economy, focusing on the phenomenon of "Dutch disease," where a booming sector coexists with a declining sector. The authors analyze the medium-run effects of asymmetric growth on resource allocation and income distribution, particularly in cases where the booming sector is extractive (e.g., minerals, natural gas) or technologically advanced (e.g., Ireland, Japan). They use a small open economy model with two traded goods and one non-traded good to examine the effects of a boom in one sector under different assumptions about factor market dynamics. The paper is structured into several sections, each addressing different aspects of the boom's impact. Section I introduces the basic framework and outlines the models to be examined, distinguishing between the resource movement effect and the spending effect. Section II analyzes the effects when labor is the only mobile factor, showing that the boom can lead to direct de-industrialization through the resource movement effect and indirect de-industrialization through the spending effect. Section III considers the case where capital is mobile between manufacturing and services, leading to more complex outcomes, including pre-industrialization and real depreciation. Section IV examines the scenario where capital and labor are mobile between all three sectors, revealing a weak presumption towards de-industrialization due to the direct impact of the resource movement effect and the potential for the spending effect to raise manufacturing output. The authors also discuss other sources of booms, such as technological progress, foreign capital inflows, and changes in energy prices, and their implications for de-industrialization. The paper concludes by summarizing the key findings and their policy implications, emphasizing the importance of understanding the distinction between the resource movement effect and the spending effect in addressing the "Dutch disease" and other structural changes in open economies.