Causes of Dutch Disease and Ways to Deal with It: Literature Overview

The term Dutch Disease was originally used in 1982 in “Economics” Journal to describe poor management in natural gas sector in the Netherlands. Later, this term was used to describe events similar to one in the Netherlands: specifically, the boom in natural resource sector and the shrinkage of manufacturing sector. Corden and Neary, in 1982, were the first who put the Dutch Disease theory in economic model. In their original paper, they described the consequences of having a booming industry within a country on other industries of the country. Initially it was assumed that the Dutch Disease can be caused only by the boom in the natural resource sector. However, evidence suggests that Dutch Disease can be caused by poor management in other sectors of industry as well. In this paper, I analyze different publications about Dutch Disease. The analysis shows the possible causes and consequences of Dutch Disease and the ways to deal with it. This paper also shows an example of country who successfully dealt with it. The paper particularly focuses on countries where Dutch Disease has occurred. The countries from South Pacific region are currently experiencing Dutch Disease because of massive international aid from developed countries. Spanish islands, the Balearics and Canary, have possibility of facing the Dutch Disease in near future. And Botswana was the only country which successfully dealt with Dutch Disease.http://opus.ipfw.edu/stu_symp2013/1001/thumbnail.jp