Dutch Disease


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Dutch Disease

The phenomenon in which the manufacturing sector of a country declines when it begins to make significant profits from the exploitation of a natural resource. For example, if a country suddenly discovers oil and sells it on the international market, it may see a decline in the competitiveness of its manufacturing companies. It is thought that the Dutch disease comes from the fact that the sale of the natural resource leads to a stronger currency, which makes the country's exports more expensive and causes scaling down in manufacturing.
References in periodicals archive ?
We will explain the effects of the Dutch Disease that plagued Ireland in correspondence with the Immiserizing Growth Theory and additional macroeconomic applications; such as sterilized foreign exchange intervention, modest capital controls and fiscal tightening.
The Dutch Disease (DD) refers to the paradoxical deleterious consequence of natural resource booms on the countries where they occur.
They have already had historical experience with the Dutch Disease, and know all about government workers who have little to do, but cannot be moved off the payroll when oil money is no longer as plentiful as it was.
In that paper, the different effects that produced joint deindustrialization in East Germany was shown as an analogy of the well-known Dutch Disease phenomenon (see, for example, Corden and Neary [1982] and Sell [1988]) which occurred in countries affected by a resource boom.
We find two mechanisms that mitigate the economic effects of oil price shocks, namely the stabilisation brought by the Oil Stabilisation Fund (OSF) and the Dutch disease effect.
The Dutch disease is when large foreign currency inflows, such as Aid, cause the value of a local currency to appreciate.
The Dutch Disease, or what APS Energy Group President Pierre Shammas called "The Oil Curse" when Saddam Hussein's Iraq invaded Iran in 1980, is caught whenever a commodity brings a sudden rise in income in one sector of the economy which is not matched by increased income in the other sectors.
Economists quote three "cursing" factors: the erosion of terms-of-trade -- the value of exports relative to imports; the Dutch disease -- the relationship between the increase in exploitation of natural resources and a decline in the manufacturing sector; and the crowding-out effect -- when increased public sector spending replaces, or drives down, private sector spending.
The Governor addressed the diagnosis of Dutch Disease for the Canadian economy that suggests an ephemeral commodities boom is causing permanent losses in the manufacturing sector.
Another big assumption is that Russia will be able to avoid most of the ill effects of Dutch disease, the sickness which has hit most natural resource-based economies in times of high oil prices, leading to reform paralysis and inflationary spirals debilitating growth.
The Dutch disease theory tends to ignore the root causes of the failure of the industrialization to take off under the export-oriented industrial (EOI) strategy, which, in turn, is the primary reason why the 'temporary' labor migration program has not only become permanently temporary but has also expanded by leaps and bounds.