Question

Please explain in detail.

practice 15

Dutch Disease is a term applied to a problem in the 1970’s whereby the Netherlands were experiencing massive and sudden inflows of capital from abroad. What was the cause of this sudden influx of capital, and what types of potential problems did it have for the Dutch or could it have for any small single resource country?

Answer 1

Dutch disease is often associated with the appreciation in the currency which can also be having a negative impact on the overall value of the export and the value of imports going up and that can negatively impact the overall employment in the country.

The concept of Dutch disease were based upon two major causes-

A. Decrease in the price competitiveness of its products domestically which will lead to a lower amount of export

B. Increase in imports on the part of the country

These two factors were contributing largest to negative impacts of appreciation in the value of Netherland currency and it is also known as Dutch disease because even after finding an Oil reserve which is a good news for the country, the the percentage of unemployment had subsequently gone up in the in Netherland and it was known as Dutch disease.