Dutch disease is a shorthand way of describing the paradox which occurs when good news, such as the discovery of large oil reserves, harms a country’s broader economy. … Symptoms include a rising currency value leading to a drop in exports and a loss of jobs to other countries.

Why does Dutch disease happen?

Although Dutch disease is generally associated with a natural resource discovery, it can occur from any development that results in a large inflow of foreign currency, including a sharp surge in natural resource prices, foreign assistance, and foreign direct investment.

What are the symptoms of Dutch disease?

We then discuss the symptoms of Dutch Disease, which include (1) real exchange rate appreciation; (2) slower manufacturing growth; (3) faster service sector growth; and (4) higher overall wages.

What is Dutch disease in Nigeria?

Dutch Disease explains the relationship between exploitation of natural resources and the decline in the agricultural and manufacturing sectors. … As a result, when economic activities in Nigeria increase it tends to have a negative impact in the agricultural sector.

Does Australia have Dutch disease?

The estimation found evidence of Dutch disease in Australia. The commodity price shock increased the real exchange rate by 1.2% point more than five years, which had immediate positive effect on the level domestic real GDP and resource output.

How is Dutch disease related to the resource curse?

The ‘Dutch disease’, a phenomenon frequently referred to in ‘resource curse’ literature, was first used to describe the Dutch economic experience where the manufacturing sector declined and suffered general inflation as a result of the booming natural gas sector.

How do you fix Dutch disease?

The diversification of the economy is a strategy that can almost eliminate the negative impact of Dutch disease on the economy. Economic diversification can be achieved by subsidizing lagging sectors of the economy or establishing tariffs to support domestic producers.

How did Norway avoid Dutch disease?

This has been called as a light Dutch disease by Ole Gunnar Austvik of the Norwegian Business School. Recognizing this problem, Norwegian policymakers informally slowed down oil production and investments in the 1970s in order to avoid negative impacts on the economy at large.

Does foreign aid cause Dutch disease?

Rajan and Subramanian indeed find evidence that foreign aid causes Dutch Disease. In the 1980s and 1990s, the more aid a country received, the less growth (or more shrinkage) it saw in industries that tend to export the most.

Does Russia have Dutch disease?

This movement has managed to keep Russia’s current account from dangerous deficit levels. Yet, despite this, Russia remains wedded to the fortunes of oil and gas. Dutch disease, that nasty virus that attacks resource rich countries, is still in Russia’s blood.

What is Dutch disease specifically in a Canadian context?

The term Dutch disease refers to the phenomenon whereby a country’s specialization in the exploitation and export of natural resources leads to the appreciation of its currency and the subsequent decline of its manufacturing sector.

Who benefits when a country’s currency appreciates?

Currency appreciation usually reduces inflation because imports become cheaper and the lower prices lead to lower inflation. It makes imports more attractive, causing the demand for local products to fall. Local companies usually have to cut costs and increase productivity so they can remain competitive.

How does Dutch disease affect Nigeria?

Nigeria, over the years, has been showing a rapid appreciation of the domestic currency, a rise in real wages and the service sector and a slow-down in the industrial production which are all signs of presence of Dutch disease which predicts that a country with large natural resource rents may experience a de- …

Who coined the term Dutch disease?

The classic economic model describing Dutch disease was developed by the economists W.Max Corden and J.Peter Neary in 1982. In the model, there is a non-tradable sector (which includes services) and two tradable sectors: the booming sector, and the lagging (or non-booming) tradable sector.

What is meant by the term resource curse?

The resource curse (also known as the paradox of plenty) refers to the failure of many resource-rich countries to benefit fully from their natural resource wealth, and for governments in these countries to respond effectively to public welfare needs.

How did Botswana avoided the resource curse?

Botswana, however, avoided the negative effects of commodity price volatility by saving the revenue made from diamond mining. Botswana established the Public Service Debt Management Fund and the Revenue Stabilization Fund, which provided the government revenue from diamonds over time, instead of all at once.

Is Russia cursed by oil?

Russia is often considered a perfect example of the so-called resource curse–the argument that natural resource wealth tends to undermine democracy. Given high oil prices, some observers see the country as virtually condemned to authoritarian government for the foreseeable future.

What are the political and governance implications of Dutch Disease?

The political implications of high revenues from oil lead to a culture of rent seeking and distortion of institution, which in combinations with high relative prices (a direct impact of the Dutch Disease) create an unfavourable situation for economic development.

What causes capital flight to happen?

Capital flight is where investors and businesses remove their money and assets from one country. It can occur due to economic or political factors such as economic recessions or unstable governments. Either way, it encourages investors and businesses alike to transfer their capital away and towards other nations.

Does a country suffering from Dutch disease become a rentier state?

Bad governance in Iran has created Dutch Disease, Rentier State, and Resource Curse, DRR as a characteristic triangle. As the Iranian annual budget is financed by oil revenue, it is involved in a rentier state case.

Which country were the Dutch belongs to?

the Netherlands Nederlanders) are a Germanic ethnic group and nation native to the Netherlands.

Did Norway escape the resource curse?

After catching- up with its neighbors, Norway surprisingly maintained a higher pace, and appears to have escaped the curse and the disease.

Does Norway have Dutch disease?

In many countries, oil and gas resources have proved detrimental to economic development. Norway is often presented as a resource-abundant economy which has avoided symptoms of resource curse, such as Dutch disease.

Is Norway a Petrostate?

A petrostate is a nation whose economy is heavily dependent on the extraction and export of oil or natural gas. The presence alone of large oil and gas industries does not define a petrostate, as countries like Norway, Canada, and the United States are major oil producers, but also have diversified economies.

What is the natural resource trap?

The resource curse, or resource trap, is a paradoxical situation in which countries with an abundance of non-renewable natural resources experience stagnant economic growth or even economic contraction.

What is the meaning of rent seeking?

Rent seeking is an economic concept that occurs when an entity seeks to gain wealth without any reciprocal contribution of productivity. … An example of rent seeking is when a company lobbies the government for grants, subsidies, or tariff protection.

What is classical growth theory?

Classical growth theory was developed by (mostly British) economists during the Industrial Revolution. Classical growth theory explains economic growth as a result of capital accumulation and the reinvestment of profits derived from specialization, the division of labor, and the pursuit of comparative advantage.