What is the Dutch disease?

In economics, the Dutch disease is the apparent causal relationship between the increase in the economic development of a specific sector (e.i. natural resources) and a decline in other sectors (e.i. manufacturing sector or agriculture). The putative mechanism is that as revenues increase in the growing sector (or inflows of foreign aid), the given nation's currency becomes stronger compared to currencies of other nations (manifest in an exchange rate). This results in the nation's other exports becoming more expensive for other countries to buy, and imports becoming cheaper, making those sectors less competitive. While it most often refers to natural resource discovery, it can also refer to "any development that results in a large inflow of foreign currency, including a sharp surge in natural resource prices, foreign assistance, and foreign direct investment". The term is coined to the discovery of the large natural gas field in 1959 in the Netherlands.

The classic economic model describing Dutch disease was developed by the economists W. Max Corden and J. Peter Neary in 1982. In the model, there's a non-tradable sector (that includes services) and two tradable sectors: the booming sector, and the lagging (or non-booming) tradable sector. The booming sector is usually the extraction of natural resources such as oil, natural gas, gold, copper, diamonds or bauxite, or the production of crops, such as coffee or cocoa. The lagging sector is usually manufacturing or agriculture.