I came across an interesting economic phenomenon referred to as “Dutch Disease” in economic parlance. So let me share this concept with you.
The concept states that contrary to the popular belief, natural-resource bonanzas tend to reduce rather than enhance living standards in an economy. Dutch Disease strikes when foreign demand for an export drives up the exchange value of the exporting country’s currency. This increase in the currency’s value makes the nation’s other export products less competitive. Analysts often cite this pattern as a reason why relatively resource-poor Hong-Kong, Japan, and Western Europe have thrived while oil-rich Nigeria and other have not.
Besides distorting the value of currency, natural-resource wealth often has crippling social effects. Easy, unearned wealth tends to dampen productivity, it turns out. Some Gulf oil states have extended so many amenities to their citizens that those without an inbred will to work don’t. Mundane tasks fall to immigrants and guest workers who gladly collect what is to them a good wage. This is easily manifest in a large menial workforce from Indian subcontinent in the Gulf.
Dutch disease primarily afflicts developing countries because resource bonanzas are more apt to dwarf the GDP of a developing country than that of a developed one. But nevertheless it can strike anywhere with pernicious effect. Britain felt this when they discovered oil in North Sea & Russia is still grappling with a milder form of this phenomenon.
Hope you found this as interesting & counter intuitive as I did. I have brazenly stolen this material from Alan Greenspan’s latest book, The Age of Turbulence. I will be sharing other similar findings as and when encountered.
Good day everyone.
The concept states that contrary to the popular belief, natural-resource bonanzas tend to reduce rather than enhance living standards in an economy. Dutch Disease strikes when foreign demand for an export drives up the exchange value of the exporting country’s currency. This increase in the currency’s value makes the nation’s other export products less competitive. Analysts often cite this pattern as a reason why relatively resource-poor Hong-Kong, Japan, and Western Europe have thrived while oil-rich Nigeria and other have not.
Besides distorting the value of currency, natural-resource wealth often has crippling social effects. Easy, unearned wealth tends to dampen productivity, it turns out. Some Gulf oil states have extended so many amenities to their citizens that those without an inbred will to work don’t. Mundane tasks fall to immigrants and guest workers who gladly collect what is to them a good wage. This is easily manifest in a large menial workforce from Indian subcontinent in the Gulf.
Dutch disease primarily afflicts developing countries because resource bonanzas are more apt to dwarf the GDP of a developing country than that of a developed one. But nevertheless it can strike anywhere with pernicious effect. Britain felt this when they discovered oil in North Sea & Russia is still grappling with a milder form of this phenomenon.
Hope you found this as interesting & counter intuitive as I did. I have brazenly stolen this material from Alan Greenspan’s latest book, The Age of Turbulence. I will be sharing other similar findings as and when encountered.
Good day everyone.
