Why wouldn't the cheaper natural resource, as an input to the productive
process, lower the cost of manufactured goods and make them MORE
competitive with other nations?
Further, the cheaper natural resource, to the extent it is a consumer
commodity as well, e. g. home heating, reduces the cost of living doesn't
it? And then the additional real income can be spent on domestic
products, adding to employment and creating a general boom.
As I write this I wonder if the assumption of the country being
already at full employment isn't crucial to the onset of the disease.
That assumption distorts everything -- and as old as I am I have never
seen or read of actual full employment.
Gene Coyle
Bill Lear wrote:
> According to investorwords.com, "dutch disease" is:
>
> The deindustrialization of a nation's economy that occurs
> when the discovery of a natural resource raises the value of
> that nation's currency, making manufactured goods less
> competitive with other nations, increasing imports and
> decreasing exports. The term originated in Holland after
> the discovery of North Sea gas.
>
> A nephew of mine who is majoring in economics here in Austin asked me
> about this, and I was entirely ignorant of it, but it from what he
> told me, it sounded suspicious. The definition here makes the claim
> that when the value of a nation's currency increases,
> deindustrialization occurs. It also claims that discovery of a
> natural resource can lead to a rise in a nation's currency.
> Simplistic formula like this are often used to mask the operations of
> nefarious power, so I'm curious if this is a valid concept, etc.
>
> If a natural resource were discovered, why would it necessarily result
> in a rise in value of the currency? If Nigeria discovers lots of oil,
> why could it not use the proceeds from the sale to *increase*
> industrialization? Policy decisions seem to me to be operative here,
> but I need some help figuring this out...
>
> Bill
