Dutch Disease
Economic harm to a country's other industries caused by a natural resource boom.
What is Dutch Disease?
Dutch disease describes the phenomenon where a rapid increase in revenues from natural resources — such as oil, gas, or minerals — leads to a decline in other sectors, particularly manufacturing and tradable goods. The mechanism works through two channels: the resource boom appreciates the domestic currency (making exports less competitive) and draws labor and capital toward the resource sector, raising wages and costs for other industries. The term originated from the Netherlands after the 1959 discovery of large natural gas deposits, which caused the Dutch guilder to appreciate and damaged the export competitiveness of Dutch manufacturing. Resource-rich economies including Nigeria and Venezuela have experienced severe forms of Dutch disease.
Example
After a major oil discovery, a country's currency appreciates 20% as foreign capital floods in to develop the resource. Its automakers now find their export prices 20% higher in foreign markets — pricing them out of competition. Assembly plants close and workers migrate to the oil sector, hollowing out the manufacturing base even as GDP rises from resource revenues.