D u tc h d is e a se is a n e c o n o m ic c o n c e p t th a t trie s to e x p la in th e a p p a re n t re la tio n s h ip b e tw e e n a tu ra l re so u rc e s a n d a d e c lin e in th e m a n u fa c tu rin g s e c to r c o m b in e d w ith m o ra l fa llo u t.

T h e th e in re v e n u e s fro m n a tu ra l re so u rc e s w ill d e in d u stria lis e a n a tio n s e c o n o m y b y ra isin g th e e x c h a n th e m a n u fa c tu rin g se c to r le s s c o m p e titiv e a n d p u b lic se rv ic e s e n ta n g le d w ith b u sin e s s in te e x tre m e ly d iffic u lt to d e fin itiv e ly sa y th a t D u tc h d ise a se is th e c a u se o f th e d e c re a s in g m a n u fa c tu r a re m a n y o th e r fa c to rs a t p la y in th e v e ry c o m p le x g lo b a l e c o n o m y . W h ile it m o s t o fte n re fe d isc o v e ry , it c a n a lso re fe r to "a n y d e v e lo p m e n t th a t re su lts in a la rg e in flo w o f fo re ig n c u rre n su rg e in n a tu ra l re so u rc e p ric e s, fo re ig n a ss ista n c e , a n d fo re ig n h e te rm weastmoeinte d in 1 9 7 7 b y T h . T d ire c t in v s c n E c o n o m is t to d e s c rib e th e d e c lin e o f th e m a n u fa c tu rin g se c to r in th e N e th e rla n d s a fte r th e d is c o v g a s fie ld in 1 9 5 9 , c u lm in a tin g in th e w o rld 's b ig g e s t p u b lic -p riv a te p a rtn e rsh ip N .V . N e d e rla n E s so (n o w E x x o n M o b il), S h e ll a n d th e D u tc h g o v e rn m e n t in 1 9 6 3 . T h e C o r e M o d e l T h e c la ss ic e c o n o m ic m o d e l d e s c rib in g D u tc h D ise a se w a s d e v e lo p e d b y th e e c o n o m is ts W P e te r N e a ry in 1 9 8 2 . In th e m o d e l, th e re is th e n o n -tra d e d g o o d se c to r (th is in c lu d e s s e rv ic e s ) se c to rs : th e b o o m in g se c to r, a n d th e la g g in g s e c to r, a ls o c a lle d th e n o n -b o o m in g tra d a b le se c to r. T u s u a lly th e e x tra c tio n o f o il o r n a tu ra l g a s , b u t c a n a ls o b e th e m in in g o f g o ld , c o p p e r, d ia m o n p ro d u c tio n o f c ro p s , su c h a s c o ffe e o r c o c o a . T h e la g g in g s e c to r g e n e ra lly re fe rs to m a n u fa c tu rin g a g ric u ltu re . A re s o u rc e b o o m w ill a ffe c t th is e c o n o m y in tw o w a y s . In th e " re s o u rc e m o v e m e n t e ffe c t" , th in c re a s e th e d e m a n d fo r la b o r, w h ic h w ill c a u s e p ro d u c tio n to sh ift to w a rd th e b o o m in g se c to r, a se c to r. T h is sh ift in la b o r fro m th e la g g in g se c to r to th e b o o m in g se c to r is c a lle d d ire c t-d e in d u s th is e ffe c t c a n b e n e g lig ib le , sin c e th e h y d ro c a rb o n a n d m in e ra l se c to rs g e n e ra lly e m p lo y fe w p e ffe c t" o c c u rs a s a re su lt o f th e e x tra re v e n u e b ro u g h t in b y th e re s o u rc e b o o m . It in c re a se s th e d e n o n -tra d a b le , sh iftin g la b o r a w a y fro m th e la g g in g se c to r. T h is sh ift fro m th e la g g in g se c to r to th is c a lle d in d ire c t-d e in d u stria lis a tio n . A s a re s u lt o f th e in c re a se d d e m a n d fo r n o n -tra d e d g o o d s, th w ill in c re a s e . H o w e v e r, p ric e s in th e tra d e d g o o d s e c to r a re se t in te rn a tio n a lly , s o th e y c a n n o in c re a s e o f th e re a l e x c h an g e ra te . E ffe c ts o f D u tc h D is e a s e In s im p le tra d e m o d e ls, a c o u n try o u g h t to sp e c ia lis e in in d u s trie s th a t it h a s a c o m p a ra t th e o re tic a lly a c o u n try ric h in n a tu ra l re s o u rc e s w o u ld b e b e tte r o ff s p e c ia lis in g in th e e x tra c tio n o re a lity , h o w e v e r, th e sh ift a w a y fro m m a n u fa c tu rin g c a n b e d e trim e n ta l. If th e n a tu ra l re so u rc e s b e g in to ru n o u t o r if th e re is a d o w n tu rn in p ric e s , c o m p e titiv e m a n u fa n o t re tu rn a s q u ic k ly o r a s e a sily a s th e y le ft. T h is is b e c a u se te c h n o lo g ic a l g ro w th is sm a lle r in th th e n o n -tra d a b le s e c to r th a n th e n o n -b o o m in g tra d a b le se c to r. S in c e th e re h a s b e e n le s s te c h n o e c o n o m y re la tiv e to o th e r c o u n trie s , its c o m p a ra tiv e a d v a n ta g e in n o n -b o o m in g tra d a b le g o o d s w le a d in g firm s n o t to in v e st in th e tra d a b le s se c to r. A lso , v o la tility in th e p ric e o f n a tu ra l re so u r e x c h a n g e ra te , m a y p re v en t m o re in v e s tm e n t fro m firm s , s in c e firm s w ill n o t in v e s t if th e y a re n o e c o n o m ic c o n d itio n s w ill b e . T h e re a re a lso m a n y o th e r h a rm fu l e ffe c ts o fte n a s s o c ia te d w ith D c o rru p tio n a n d p ro te c tio n ist p o lic ie s fo r a ffe c te d la g g in g se c to r in d u strie s. H o w e v e r, th e s e e ffe c t b e d e s c rib e d a s p a rt o f th e b ro a d e r re s o u rc e c u rse . M in im iz in g D u tc h D ise a s e T h e re a re tw o b a sic w a y s to re d u c e th e th re a t o f D u tc h d ise a se : b y s lo w in g th e a p p re c ia tio n ra te a n d b y b o o s tin g th e co m p e titiv e n e ss o f th e m a n u fa c tu rin g s e c to r. O n e a p p ro a c h is to ste riliz e th e b o o m re v e n u e s, th a t is, n o t to b rin g a ll th e re v e n u e s in to th e c o to sa v e s o m e o f th e re v e n u e s a b ro a d in sp e c ia l fu n d s a n d b rin g th e m in s lo w ly . S te rilisa tio n w il

e ffe c t. A n o th e r b e n e fit o f le ttin g th e re v e n u e s in to th e c o u n try s lo w ly , is th a t it c a n g iv e a c o u stre a m , ra th e r th a n n o t k n o w in g h o w m u c h re v e n u e it w ill h a v e fro m y e a r to y e a r. A lso , b y s a v in a c o u n try is sa v in g s o m e o f th e re v e n u e s fo r fu tu re g e n e ra tio n s . E sp e c ia lly in d e v e lo p in g c p o litic a lly d iffic u lt a s th e re is o fte n p re ssu re to s p e n d th e b o o m re v e n u e s im m e d ia te ly to a lle v ig n o re s b ro a d e r m a c ro e c o n o m ic im p lic a tio n s. E x a m p le s o f th e s e so v e re ig n w e a lth fu n d s in c P e n s io n F u n d in N o rw a y , th e S ta b iliz a tio n F u n d o f th e R u ssia n F e d e ra tio n o r th e S ta te O il F u n d F u tu re G e n e ra tio n s F u n d o f th e S ta te o f K u w a it e s ta b lish e d in 1 9 7 6 . R e c e n t ta lk s le d b y D e v e lo p m e n t P ro g ra m m e in C a m b o d ia In te rn a tio n a l O il a n d G a s C o n fe re n c e o n fu e lin g p o v e rt th e n e e d fo r b e tte r e d u c a tio n o f sta te o ffic ia ls a n d e n e rg y c a d re s lin k e d to a p o s sib le S u d d e n W e a R e s o u rc e c u rs e /P a ra d o x o f p le n ty .[c ita tio n n e e d e d ] A n o th e r s tra te g y fo r a v o id in g re a l e x c h a n g e in c re a s e sa v in g in th e e c o n o m y in o rd e r to re d u c e la rg e c a p ita l in flo w s w h ic h a re a b le to c a u se re a l e x c h a n g e ra te . T h is c a n b e d o n e if th e c o u n try ru n s a b u d g e t su rp lu s . A c o u n try c a n e n c o firm s to sa v e m o re b y re d u c in g in c o m e a n d p ro fit ta x e s. B y in c re a s in g sa v in g , a c o u n try c a n re d to fin a n c e g o v e rn m e n t d e fic its a n d fo re ig n d ire c t in v e stm e n t. In v e stin g in e d u c a tio n a n d in fra stru c tu re is a b le to in c re a s e th e c o m p e titiv e n e ss o f th e m a n u a lte rn a tiv e is th a t a g o v e rn m e n t c a n re so rt to p ro te c tio n is m , th a t is, in c re a s e su b s id ie s o r ta riffs. H a d a n g e ro u s s tra te g y a n d c o u ld w o rse n th e e ffe c ts o f D u tc h D ise a se , a s la rg e in flo w s o f fo re i p ro v id e d b y th e e x p o rt se c to r a n d b o u g h t u p b y th e im p o rt se c to r. Im p o sin g ta riffs o n im p o rte d re d u c e th a t se c to rs d e m an d fo r fo re ig n c u rre n c y , le a d in g to fu rth e r a p p re c ia tio n o f th e re a l e x c h a n D ia g n o sin g D u tc h D ise a s e It is ra th e r d iffic u lt to d e fin itiv e ly s a y th a t a c o u n try h a s D u tc h D ise a se b e c a u s e it is d re la tio n s h ip b e tw e e n a n in c re a se in n a tu ra l re s o u rc e re v e n u e s , th e re a l-e x c h a n g e ra te a n d a d se c to r. T h e re a re a n u m b e r o f d iffe re n t th in g s th a t c o u ld b e c a u s in g th is a p p re c ia tio n o f th e re B a la ssa -S a m u e ls o n e ffe c t o c c u rs w h e n p ro d u c tiv ity in c re a se s a ffe c t th e re a l e x c h a n g e ra te . A lso in th e te rm s o f tra d e a n d la rg e c a p ita l in flo w s . O fte n th e s e c a p ita l in flo w s a re c a u s e d b y fo re ig n d fin a n c e a c o u n try s d e b t. S im ila rly , it is d iffic u lt to sh o w w h a t is c a u s in g a d e c re a se in th e la g g in g se c to r. A c a s e in p o in T h o u g h th is e ffe c t is n a m e d a fte r th e N e th e rla n d s, e c o n o m is ts h a v e a rg u e d th a t th e d e c lin e in th e in d u stry w a s a c tu a lly c a u se d b y u n s u s ta in a b le sp e n d in g o n so c ia l se rv ic e s .