Oil prices hikes since 2004 caused a natural resource windfall in the Colombian economy like in many other developed and developing countries. This paper finds strong empirical support of a positive and negative relation between the real exchange rate and the profits of the traded and nontraded sectors, respectively. Moreover, the effect on the manufacturing sector shows a deindustrialization in the Colombian economy due to the shock in oil prices. Compared by size, smaller firms are more vulnerable to exchange rate appreciation. We discuss the role of fiscal policy in addressing the Dutch disease.
