San José State University

applet-magic.com
Thayer Watkins
Silicon Valley
& Tornado Alley
U.S.A.

The Nature of the Dutch Disease in
International Economics and its Remedy

In 1959 natural gas sources were discovered under the territorial waters off the coast of the Netherlands. This was looked upon as a very fortunate development for the Netherlands soon it was found that there could be adverse aspect to something that was otherwise beneficial. The export of natural gas increased the value of the Dutch currency and the reduced the competitiveness of the other export industries of the Netherlands. Thousands of jobs were lost and resulting malaise in the Dutch economy was labeled the Dutch Disease. The Dutch Disease associated with the discovery of petroleum in a country is labeled the Curse of Oil.

The remedies for the Dutch Disease are simple. Some portion of the export earnings can be held as foreign currency deposits instead of being converted into the domestic currency. Some portion of the export earning can be used to improve the productivity of the other export industries to allow them to lower their prices and remain competitive.

Since the dangers of the Dutch Disease were identified other countries such as Norway were able to avoid the adverse effects of their becoming exporters of natural gas.

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