Dutch disease

:This article is about an economic phenomenon. For the disease affecting Elm trees, see Dutch elm disease

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Dutch disease is an economic phenomenon in which the discovery and exploitation of natural resources deindustrializes a nation's economy. In the given scenario, the value of the country's currency rises (making manufactured goods less competitive), imports increase, non-resource exports decrease. The Dutch Disease becomes an actual disease if there is something special to the activities resource extraction crowds out, such as learning by doing or economies of scale. The phenomenon was first observed in the Netherlands in the 1960s, when large reserves of natural gas in the North Sea were first exploited. There is now a substantial body of research on the topic. Skeptics of Dutch disease argue that the downfall of a sector of the economy (i.e. exports) cannot be blamed on only the rise of energy prices; there could be many other factors at play.

Related Topics:
Economic - Natural resource - Currency - Economies of scale - Netherlands - Natural gas

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Although one is much more aware of these problems today, it is often hard to introduce measures to limit the effects of the phenomenon due to domestic political advantages in the short run. Norway is perhaps the best example of this situation in Europe today. A high oil-generated income to the treasury postpone unpopular reforms in the public sector. The ?easy money? has resulted in large growth in government spending and an almost non-existing long-term policy on research and industry. Although the last conservative coalition government (2001-2005) have carried through some privatization and competitive bidding in the public sector, the result has been more private profit on public expense than any real reforms.

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The term appears to have been coined by The Economist in an article in its 1977 November 28 issue on page 82 and 83.

Related Topics:
The Economist - 1977 - November 28

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Post-Soviet Russia has been labeled in its newspapers as a case of Dutch disease, because of its reliance on raw materials exports, especially oil. Its economy is compared, not without irony, to a large Venezuela.

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In more recent history, the opening of the BTC pipeline in Baku, Azerbaidzhan allowing for oil exports valued at 80% of all exports seems to have created another case of the Dutch disease.

Related Topics:
BTC pipeline - Baku - Azerbaidzhan

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