Don’t panic, the “Dutch Disease” isn’t a new virus, rather it’s an economic term for the phenomenon where a boom in a particular export (like discovering oil) causes negative effects to the nation as a whole. The somewhat problematic name came from The Netherlands discovering vast natural gas deposits in 1959, somehow causing its unemployment rate to rise and capital investment to fall. Paradoxical, right? So why does good resources harms countries? Currency Appreciation & Capital Scarcity 👇
1. Currency Appreciation:
Say, Malaysia discovers a ton of oil so its oil exports increase. Ringgit then appreciates in exchange rate (higher demand for exports = higher demand for Ringgit). Awesome right?
However, stronger Ringgit means other Malaysian exports are less competitive.
For example, if originally 1 MYR = 1 SGD: