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DUTCH DISEASE
By
Mr. V. VEERANAN
B.Sc. Computer Science., Dip. In Yoga
What is Dutch Disease
Dutch Disease in economic refers to a phenomenon
wherein a country witnesses uneven growth across sectors
due to the discovery of natural resources, especially large
oil reserves.
According to the concept, when a country discovers natural
resources and starts exporting them to the rest of the world,
it causes the exchange rate of the currency to appreciate
significantly and this, in turn, discourages the exports from
others sectors while encouraging the import of cheaper
alternatives.
Mr. V.Veeranan, B.Sc. Computer Science, Dip. in Yoga
The origin of the term
In the 1960s, the Netherlands discovered gas
reserves in the North Sea. The subsequent export of oil and
the appreciation of the Dutch currency made Dutch exports
of all non-oil products less competitive on the world market.
Unemployment rose from 1.1% to 5.1% and capital
investment in the country dropped. Following this, over the
years, the country witnessed a downfall in the industrial
sector.
The term was coined by The economist in 1977 to describe
the decline of the manufacturing industry in the
Netherlands.
Mr. V.Veeranan, B.Sc. Computer Science, Dip. in Yoga
How to Avoid Dutch Disease
The deceleration of currency appreciation is an
easier and more viable strategy to prevent the adverse
effects of Dutch disease. It can sometimes be achieved by
smoothing the spending of revenues earned from the export
of natural resources.
One of the most common methods to do so is the
creation of a sovereign wealth fund.
Mr. V.Veeranan, B.Sc. Computer Science, Dip. in Yoga
Diversification of the
Economy
The diversification of the economy is a strategy that
can almost eliminate the negative impact of Dutch disease
on the economy. Economy or establishing tariffs to support
domestic producers.
Mr. V.Veeranan, B.Sc. Computer Science, Dip. in Yoga
Monetary Policy
The choice of an appropriate monetary policy is
important for macroeconomic management in commodity-
exporting countries.
With the discovery of natural resources, the country
sees a huge inflow of money, especially foreign currency.
The export of natural resources tends to affect the
equilibrium in the money and exchange rate markets.
The Dutch disease can be prevented if the central
bank raises the banking system reserve’s requirement,
which decreases domestic credit.
Mr. V.Veeranan, B.Sc. Computer Science, Dip. in Yoga
Impact
This appreciation in the value of domestic currency
leads to a huge fall in foreign currency value.
Thus the influx of foreign currency and fall in the
value of foreign currency leads to an increase in imports.
Because the import becomes cheaper and thus spends
increases.
Ultimately, the impact is seen not only on the
Balance of Payments (BoP) of the country.
Mr. V.Veeranan, B.Sc. Computer Science, Dip. in Yoga
Mr. V.Veeranan, B.Sc. Computer Science, Dip. in Yoga

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Dutch Disease

  • 1. DUTCH DISEASE By Mr. V. VEERANAN B.Sc. Computer Science., Dip. In Yoga
  • 2. What is Dutch Disease Dutch Disease in economic refers to a phenomenon wherein a country witnesses uneven growth across sectors due to the discovery of natural resources, especially large oil reserves. According to the concept, when a country discovers natural resources and starts exporting them to the rest of the world, it causes the exchange rate of the currency to appreciate significantly and this, in turn, discourages the exports from others sectors while encouraging the import of cheaper alternatives. Mr. V.Veeranan, B.Sc. Computer Science, Dip. in Yoga
  • 3. The origin of the term In the 1960s, the Netherlands discovered gas reserves in the North Sea. The subsequent export of oil and the appreciation of the Dutch currency made Dutch exports of all non-oil products less competitive on the world market. Unemployment rose from 1.1% to 5.1% and capital investment in the country dropped. Following this, over the years, the country witnessed a downfall in the industrial sector. The term was coined by The economist in 1977 to describe the decline of the manufacturing industry in the Netherlands. Mr. V.Veeranan, B.Sc. Computer Science, Dip. in Yoga
  • 4. How to Avoid Dutch Disease The deceleration of currency appreciation is an easier and more viable strategy to prevent the adverse effects of Dutch disease. It can sometimes be achieved by smoothing the spending of revenues earned from the export of natural resources. One of the most common methods to do so is the creation of a sovereign wealth fund. Mr. V.Veeranan, B.Sc. Computer Science, Dip. in Yoga
  • 5. Diversification of the Economy The diversification of the economy is a strategy that can almost eliminate the negative impact of Dutch disease on the economy. Economy or establishing tariffs to support domestic producers. Mr. V.Veeranan, B.Sc. Computer Science, Dip. in Yoga
  • 6. Monetary Policy The choice of an appropriate monetary policy is important for macroeconomic management in commodity- exporting countries. With the discovery of natural resources, the country sees a huge inflow of money, especially foreign currency. The export of natural resources tends to affect the equilibrium in the money and exchange rate markets. The Dutch disease can be prevented if the central bank raises the banking system reserve’s requirement, which decreases domestic credit. Mr. V.Veeranan, B.Sc. Computer Science, Dip. in Yoga
  • 7. Impact This appreciation in the value of domestic currency leads to a huge fall in foreign currency value. Thus the influx of foreign currency and fall in the value of foreign currency leads to an increase in imports. Because the import becomes cheaper and thus spends increases. Ultimately, the impact is seen not only on the Balance of Payments (BoP) of the country. Mr. V.Veeranan, B.Sc. Computer Science, Dip. in Yoga
  • 8. Mr. V.Veeranan, B.Sc. Computer Science, Dip. in Yoga