Many oil-producing countries suffer from a structural imbalance in favor of the oil sector
Dear friend Yahya Alboali
Dutch disease is an economic concept that describes a phenomenon where a natural resource boom in a country leads to a decline in the competitiveness of other sectors of the economy, such as manufacturing and agriculture. The term was coined after the Netherlands experienced a decline in their manufacturing sector in the 1960s following the discovery of large natural gas reserves.
The influx of revenue from the natural resource sector can lead to an appreciation of the exchange rate, which makes other exports less competitive on the global market. This can lead to a decline in these sectors, which can have negative consequences for the overall health of the economy. Additionally, the natural resource sector may not create as many jobs as other sectors, which can exacerbate income inequality.
Dutch disease is a challenge for many resource-rich countries, and policymakers must carefully manage their economies to avoid its negative consequences.
I specialize in Dutch disease. I recommend to have a look at my academic research works to grasp more on this matter.
Best
Ibrahim
According to Wikipedia, in economics, the Dutch disease is the apparent causal relationship between the increase in the economic development of a specific sector (for example natural resources) and a decline in other sectors (like the manufacturing sector or agriculture).
The term was coined in 1977 by The Economist to describe the decline of the manufacturing sector in the Netherlands after the discovery of the large Groningen natural gas field in 1959.
The presumed mechanism is that while revenues increase in a growing sector (or inflows of foreign aid), the given economy's currency becomes stronger (appreciates) compared to foreign currencies (manifested in the exchange rate). This results in the country's other exports becoming more expensive for other countries to buy while imports become cheaper, rendering those sectors less competitive.
While it most often refers to natural resource discovery, it can also refer to "any development that results in a large inflow of foreign currency, including a sharp surge in natural resource prices, foreign assistance, and foreign direct investment".
According to CFI Team, Dutch disease is a concept that describes an economic phenomenon where the rapid development of one sector of the economy (particularly natural resources) precipitates a decline in other sectors. It is also often characterized by a substantial appreciation of the domestic currency. Dutch disease is a paradoxical situation where good news for one sector of the economy, such as the discovery of natural resources, negatively impacts the country’s overall economy.
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