Dutch disease Resource curse

dutch disease first became apparent after dutch discovered huge natural gas field in groningen in 1959. netherlands sought tap resource in attempt export gas profit. however, when gas began flow out of country did ability compete against other countries exports. netherlands focus on new gas exports, dutch currency began appreciate, harmed country s ability export other products. growing gas market , shrinking export economy, netherlands began experience recession. process has been witnessed in multiple countries around world including not limited venezuela (oil), angola (diamonds, oil), democratic republic of congo (diamonds), , various other nations. of these countries considered resource-cursed .

dutch disease makes tradable goods less competitive in world markets. absent currency manipulation or currency peg, appreciation of currency can damage other sectors, leading compensating unfavorable balance of trade. imports become cheaper in sectors, internal employment suffers , skill infrastructure , manufacturing capabilities of nation. problem has historically influenced domestic economics of large empires including rome during transition republic, , united kingdom during height of colonial empire. compensate loss of local employment opportunities, government resources used artificially create employment. increasing national revenue result in higher government spending on health, welfare, military, , public infrastructure, , if done corruptly or inefficiently can burden on economy. while decrease in sectors exposed international competition , consequently greater dependence on natural resource revenue leaves economy vulnerable price changes in natural resource, can managed active , effective use of hedge instruments such forwards, futures, options , swaps, if managed inefficiently or corruptly can lead disastrous results. also, since productivity increases faster in manufacturing sector in government, economy have lower productivity gains before.