Dutch Disease: How One Industry Causes National Economic ...

4:00 PM By Article Directory

'; div.innerHTML = summary; } //]]> Dutch Disease: How One Industry Causes National Economic Downturn Dutch Disease: How One Industry Causes National Economic Downturn

Dutch Disease gets its name from an economic phenomenon seen in Holland. The discovery of natural gas reserves in Holland in the 1960s led to a slump in other sectors like manufacturing. Dutch Disease is the recession that hits other sectors when one industry dominates, or increases its exports.

Causes of Dutch Disease: The major cause of the Dutch Disease was the discovery of natural gas in Holland. Dutch Disease normally leads to a country's currency appreciating in value. Since the value of the currency rises, manufacturing sector no longer remains competitive, leading to a slump in the manufacturing sector. This results in manufacturing jobs moving to other countries.

Results of Dutch Disease: The Dutch Disease causes a rise in imports and decrease in exports, since the high value of currency makes manufacturing and other sectors non-viable. The high cost of production makes the goods less competitive from the good manufactured by other countrie s.

Dutch Disease: Economic Model The economic model to explain Dutch Disease was developed by W Max Corden and Peter Neary in the 1980s. According to them, the parties involved include the non-traded goods sector and the traded good sector. Of the traded goods sector, one sector is a booming sector, while the other is under-performing. The booming traded goods sector may be natural gas, while the under-performing may include manufacturing, agriculture etc.

The booming sector will attract more labor, leaving the non-booming sector "stranded." In case of Dutch Disease, this may not be a cause for concern, because the natural gas sector is not labor intensive, so it will not employ too much of the country's workforce.

However, the increasing currency value means that the non-booming trade sector is no longer attractive to the workforce. Instead, people turn to the non-trade sector, like services. Through an increase in the demand for non-traded goods, the price of the non-trade sector increases. This leads to a steep boost in the real exchange rate.

Dutch Disease: Examples from History Before Holland in the 1960s, the Dutch Disease had struck many economies around the world, though it was not recognized as such at the time. In the 16th century, the gold brought by Spanish conquistadors from South America to Spain led to the earliest known case of Dutch Disease. The gold rush in Australia in the mid nineteenth century is another example of the Dutch Disease. Great Britain too caught the Dutch Disease in the 1970s due to the discovery of gas fields in the North Sea.

Though some critics think that the effects of Dutch Disease on the economy have been exaggerated, it is still a good option to be prepared for all eventualities. This is especially so if you run a small business, since your livelihood depends on the non-traded goods sector. A boom in one sector could lead to a slump in another, so it is best to be pr epared.

Alexander Gordon is a writer for http://www.smallbusinessconsulting.com - The Small Business Consulting Community. Sign-up for the free success steps newsletter and get our booklet valued at .95 for free as a special bonus. The newsletter provides daily strategies on starting and significantly growing a business.

Business Owners all across the country are joining "The Community of Small Business OwnersÂ?" to receive and provide strategies, insight, tips, support and more on starting, managing, growing, and selling their businesses. As a member, you will have access to true Millionaire Business Owners who will provide strategies and tips from their real-life experiences.

Article Source: http://EzineArticles.com/?expert=Alexander_Gordon

the descendants the descendants homeland homeland packers giants game golden globe winners 2012 ricky gervais golden globes