Dutch Disease
(1.What is meant by the term?)
Introduction
Over 50 years ago on 1960, when a sprawl bed of liquid gas was discovered in North Sea, Netherland overjoyed exploiting the natural resource and became a net exporter of gas. The demand for Dutch guilder in order to purchasing gas, rose and made it extremely strong. It left a lot of currency to a level the manufacturing export was no longer competitive.
Later on 1970, when oil price soured by 4 times; UK was tempted to invest in North Sea oil industry in Scotland. Soon after exporting the oil, UK encountered with a serious recession following labor strike. Firm workers demanded for higher wage because their disposal income has decreased which stemmed from the fall in expensive commodity demand. UK has become a net export of oil and Pound got appreciated. The rest of the industry left the market and firms started cutting their cost of human resources.
Since then the term of “Dutch Disease” assign to those with heavy reliance on their supply of natural resources that downturn the non-resource aspect of economy. The Export–oriented manufacturing system is divided to two parts; More competitive sector-normally energy sector- grow faster and further while the less competitive step back and the related employment fall substantially and in more serious crisis concludes to deindustrialization. Both mentioned event are correlated with exchange rate development.
The term of “Dutch disease” for the first time came in an article in The Economist -1977 that described the case as a natural resource curse. The name of Dutch Disease generally associated with a natural resource discovery, but it can be seen in any trade or investment activity that results in a large inflow of foreign currency, including a rise in natural resource prices, foreign aid, and foreign direct investment. The inflow of American treasures into Spain in 16th and gold discoveries in Australia in the 1850s are other two example of Dutch Disease
Introduction
Over 50 years ago on 1960, when a sprawl bed of liquid gas was discovered in North Sea, Netherland overjoyed exploiting the natural resource and became a net exporter of gas. The demand for Dutch guilder in order to purchasing gas, rose and made it extremely strong. It left a lot of currency to a level the manufacturing export was no longer competitive.
Later on 1970, when oil price soured by 4 times; UK was tempted to invest in North Sea oil industry in Scotland. Soon after exporting the oil, UK encountered with a serious recession following labor strike. Firm workers demanded for higher wage because their disposal income has decreased which stemmed from the fall in expensive commodity demand. UK has become a net export of oil and Pound got appreciated. The rest of the industry left the market and firms started cutting their cost of human resources.
Since then the term of “Dutch Disease” assign to those with heavy reliance on their supply of natural resources that downturn the non-resource aspect of economy. The Export–oriented manufacturing system is divided to two parts; More competitive sector-normally energy sector- grow faster and further while the less competitive step back and the related employment fall substantially and in more serious crisis concludes to deindustrialization. Both mentioned event are correlated with exchange rate development.
The term of “Dutch disease” for the first time came in an article in The Economist -1977 that described the case as a natural resource curse. The name of Dutch Disease generally associated with a natural resource discovery, but it can be seen in any trade or investment activity that results in a large inflow of foreign currency, including a rise in natural resource prices, foreign aid, and foreign direct investment. The inflow of American treasures into Spain in 16th and gold discoveries in Australia in the 1850s are other two example of Dutch Disease