Definition of Dutch disease

Dutch disease is the negative impact on an economy of anything that gives rise to a sharp inflow of foreign currency, such as the discovery of large oil reserves. The currency inflows lead to currency appreciation, making the country’s other products less price competitive on the export market. It also leads to higher levels of cheap imports and can lead to deindustrialisation as industries apart from resource exploitation are moved to cheaper locations.

The origin of the phrase is the Dutch economic crisis of the 1960s following the discovery of North Sea natural gas. [1]

 

Dutch disease in the news

In March 2009, an FT story considered the effects of oil revenues on the United Arab Emirates and looked at whether they had been able to avoid Dutch disease. The writer found that attempts to invest some of the windfall profits from oil in the domestic economy had backfired because too much of the investment had been in property, unlike in Saudi Arabia,  where authorities did not allow banks to overlend.

At the end of January 2014, a writer for Beyond Brics said Mongolia was facing the classic symptoms of Dutch disease – as resource exports rose, so too would the value of its currency, driving down competitiveness in other sectors.

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