Resource Income and the Effect on Domestic Neighbours: A case study on Canadian

Resource income in a multi-regional setting allows for differentiated impacts of
windfalls on the industrial development of each region. A resource exporting region
suffers from Dutch disease through a spending effect and a real exchange rate ap-
preciation. Whereas, a neighboring region will suffer from the real exchange rate
appreciation but the increased demand from the region with the resource income of
tradable goods will increase the traded good sector in the neighboring region. For a
2-region 2-sector model the equilibrium conditions on the labour allocation between
the sectors are derived taking into account resource potential windfalls. The model
is tested on and supported by a panel dataset of Canadian provinces.