Dutch disease and rent seeking: The Greenland model

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Abstract

Greenland has a highly distorted economy with an extraordinary price level: This has not occurred due to a deliberate policy, but is the result of two economic mechanisms: (i) Dutch disease caused by a large annual grant from Denmark. (ii) Rent seeking created by an unusually comprehensive system of state firms and price regulations. After much development in the 1950s and 60s, growth ceased when income reached a middle income level. This is precisely where conditions normally allow especially fast growth. This essay looks at orders of magnitudes and presents a basic model giving the logic behind this story.

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