... makes itself felt in a fixed exchange rate regime by the trade surpluses caused by the returns on overseas investment creating an inflow of gold which raises the domestic price level and makes British traded goods uncompetitive (this was accentuated around the turn of the century by very large coal exports which created further surpluses). The uncompetitiveness of UK exports would reduce their price relative to non-traded goods, so that although export goods would rise in price they would do so by less than the rise in the GDP deflator. However, the evidence regarding the Dutch Disease is mixed. Between 1856 and 1873 there was a substantial rise in overseas income, but the period saw a rise in the price of exported goods relative to the GDP deflator. By contrast, the period 1873-1913 saw a fall in the price of traded goods. Hence, although a rise in overseas income "fortuitously" ...

See this essay or coursework document in full right now