Investopedia

Continue to Site »

Dutch Disease

Filed Under » , ,
Dictionary Says

Definition of 'Dutch Disease'

Negative consequences arising from large increases in a country's income. Dutch disease is primarily associated with a natural resource discovery, but it can result from any large increase in foreign currency, including foreign direct investment, foreign aid or a substantial increase in natural resource prices.
Investopedia Says

Investopedia explains 'Dutch Disease'

Dutch disease has two main effects:

1. A decrease in the price competitiveness, and thus the export, of the affected country's manufactured goods
2. An increase in imports

In the long run, both these factors can contribute to manufacturing jobs being moved to lower-cost countries. The end result is that non-resource industries are hurt by the increase in wealth generated by the resource-based industries.

The term "Dutch disease" originates from a crisis in the Netherlands in the 1960s that resulted from discoveries of vast natural gas deposits in the North Sea. The newfound wealth caused the Dutch guilder to rise, making exports of all non-oil products less competitive on the world market.

In the 1970s, the same economic condition occurred in Great Britain, when the price of oil quadrupled and it became economically viable to drill for North Sea Oil off the coast of Scotland. By the late 1970s, Britain had become a net exporter of oil; it had previously been a net importer. The pound soared in value, but the country fell into recession when British workers demanded higher wages and exports became uncompetitive.


Articles Of Interest

  1.

    What Is International Trade?

    Everyone's talking about globalization, so we explain what is it and why some oppose it.

  2. What Is The Balance Of Payments?

    Countries track money coming in and going out through something called the balance of payments. Learn more here.

  3. Current Account Deficits: Government Investment Or Irresponsibility?

    Deficit can be a sign of trouble for some countries, and of health for others. Find out what it means when more funds are exiting than entering a nation.

  4. Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!

  5. Why The Consumer Price Index Is Controversial

    Find out why economists are torn about how to calculate inflation.

  6. Predict Inflation With The Producer Price Index

    Find out how the PPI can be used to gauge the overall health of the economy.

  7. Leading Economic Indicators Predict Market Trends

    Leading indicators help investors to predict and react to where the market is headed.

  8. Lessons Learned From the Banking Crisis

    There are lessons to be learned on how to handle severe financial downturns, and while the Fed is learning, politicians may not be.

  9. Austerity: When The Government Tightens Its Belt

    When a government tightens its belt in tough economic times the entire nation feels the squeeze.

  10. Will Quantitative Easing Be Japan's Savior?

    The quantitative easing program, recently announced by the new governor of the Bank of Japan, Haruhiko Kuroda, is for a cash infusion of $1.4 trillion by the end of 2014. Will it help the Japanese ...
comments powered by Disqus
Marketplace
Hot Definitions

  1. Winner's Curse

    Because of incomplete information, emotions or any other number of factors regarding the item being auctioned, bidders can have a difficult time determining the item's intrinsic value. As a result, the largest overestimation of an item's value ends up winning the auction.

  2. Glocalization

    A combination of the words "globalization" and "localization" used to describe a product or service that is developed and distributed globally, but is also fashioned to accommodate the user or consumer in a local market.

  3. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President.

  4. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.

  5. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.

  6. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.
Trading Center