27 August 2010

Dutch disease

I've just learnt about this important concept. It was first described when the Netherlands oil industry boomed.

What happens is that you discover, say, oil and develop your oil industry. The price of oil then skyrockets. As a result, your currency gets bid up and up and up. This makes your other export industries uncompetitive and they get wiped out. The price of oil then inevitably at some point falls...


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