What is the Dutch disease argument?

What is the Dutch disease argument?

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.

What is Dutch disease theory?

Dutch disease is a concept that describes an economic phenomenon where the rapid development of one sector of the economy (particularly natural resources) precipitates a decline in other sectors. It is also often characterized by a substantial appreciation of the domestic currency. It is a powerful tool to.

What are the causes of Dutch disease?

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.

How does Dutch disease create market failure?

Dutch disease is a market failure resulting from the existence of cheap and abundant natural resources used to produce commodities which are compatible with a more appreciated exchange rate than the one that would be necessary to make competitive the other tradable industries.

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 has Dutch disease damaged the Nigerian economy generally?

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- …

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 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.

What is the difference between resource curse and Dutch disease?

Growth studies show, counter to intuition, that the discovery of a natural resource may be a curse rather than a blessing since resource-rich countries grow slower than others. Moreover, resource abundance may involve a displacement of a growth-essential manufacturing sector, leading to Dutch Disease.

Is the Dutch Disease the same as resource curse?

This view now stands challenged by a number of studies that demonstrate the existence of a “resource curse” – slower growth and poorer economic performance in natural resource rich countries. The traditional explanation for the resource curse is the Dutch Disease or “deindustrialization”.

Who came up with the resource curse theory?

The Background The British economist Richard Auty coined the term “resource curse” in a 1993 book investigating why resource-rich countries under-performed other developing economies.

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.

What is the meaning of the Dutch disease?

Dutch disease. In economics, the Dutch disease is the apparent causal relationship between the increase in the economic development of a specific sector (for example natural resources) and a decline in other sectors (like the manufacturing sector or agriculture).

How does the Dutch disease affect the economy?

However, this could worsen the effects of Dutch disease, as large inflows of foreign capital are usually provided by the export sector and bought up by the import sector. Imposing tariffs on imported goods will artificially reduce that sector’s demand for foreign currency, leading to further appreciation of the real exchange rate.

Is the Dutch disease explained by the Rybczynski theorem?

In a model of international trade based on resource endowments as the Heckscher–Ohlin/Heckscher–Ohlin-Vanek, the Dutch disease can be explained by the Rybczynski Theorem . This article or section appears to contradict itself. Please see the talk page for more information. (November 2018)