Re: Question about "dutch disease"

["Anthony D'Costa" <dcosta@xxxxxxxxxxxxxxxx>]

the concept of dutch disease is routine in development economics.  while
the Dutch case is spepcific, the idea that sudden expansion of exports and
for that matter mono-exports can have an immiserization effect on the
local economy is plausible.  More export revenue will lead to relative
rise in local currency, thereby hurting exports.  This is also
inflationary.  This can be applied to primary exports, which are typical
exports of developing countries. Furthermore, even in the case of
high-skill exports, such as software exports from India, the limits to
such exports is precisely revaluation of local currency and thus declining
competitiveness.  Inflationary pressures, though sometimes localized as in
real estate, can be seen through the wealth-effects of rapid expansion of
one single commodity, service in this case.  That is why mono-exports,
especially primary exports is not advisable for poor countries.

Cheers, Anthony

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Anthony P. D'Costa
Associate Professor				Ph: (253) 692-4462
Comparative International Development		Fax: (253) 692-5718		
University of Washington			Box Number: 358436
1900 Commerce Street				
Tacoma, WA 98402, USA
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On Sun, 24 Feb 2002, Bill Lear wrote:

> According to investorwords.com, "dutch disease" is:
>
>      The  deindustrialization of a  nation's economy  that occurs
>      when the discovery of a natural resource raises the value of
>      that  nation's  currency,  making  manufactured  goods  less
>      competitive  with  other  nations,  increasing  imports  and
>      decreasing  exports.  The term  originated in  Holland after
>      the discovery of North Sea gas.
>
> A nephew of mine who is majoring in economics here in Austin asked me
> about this, and I was entirely ignorant of it, but it from what he
> told me, it sounded suspicious.  The definition here makes the claim
> that when the value of a nation's currency increases,
> deindustrialization occurs.  It also claims that discovery of a
> natural resource can lead to a rise in a nation's currency.
> Simplistic formula like this are often used to mask the operations of
> nefarious power, so I'm curious if this is a valid concept, etc.
>
> If a natural resource were discovered, why would it necessarily result
> in a rise in value of the currency?  If Nigeria discovers lots of oil,
> why could it not use the proceeds from the sale to *increase*
> industrialization?  Policy decisions seem to me to be operative here,
> but I need some help figuring this out...
>
>
> Bill
>
>