Role of Dutch Disease in affecting a Country’s Economy

Role of Dutch Disease in affecting a Country’s Economy

The author is addressing the Issue of Dutch Disease with respect to case study of three countries. They are: I] Nigeria-Oil II] Guinea-Bissuu - Cashewnuts III] Maldives - Fishery
1.

The Dutch Disease was originally coined by The Economist in 1977.[1] According to the The Core Model on Spending Effect and Resource Movement Effect presented by W.M. Corden in his Article BOOMING SECTOR AND DUTCH DISEASE ECONOMICS.[2]

According to this model, the natural resource discovered by a nation which tends to exploit and export the natural resources produce an adverse effect on the manufacturing industry as Both capital and Labour shift from other such industries and join the booming sector as a result of Higher demand resulting in deindustrialization of such industry.

The second dangerous effect is the spending effect. This causes an increase in spending by the private and public sector of such nation in non-tradable goods, usually construction and other non-tradeable services. The increased demand then offers such nations to increase the price. However, the price for these goods is often set internationally (being manufacturing sector), preventing such an increase which in turn affects the economy.[3]

This Research paper is based on the Issue of Dutch Disease with respect to case study of three countries. They are:

I] Nigeria-Oil

II] Guinea-Bissuu - Cashewnuts

III] Maldives - Fishery

The researcher in this paper is focusing only on the abovementioned countries and their economic and export concentration.

Case I: Dutch disease in Nigeria:

Background

Before the discovery of the first commercial oil field at Oloibiri in the Nigerian Delta in 1956, Nigeria was dependent mainly on supply of agricultural exports in order to supply their economy. Nigeria in the year 1958 started exporting oil.[4] Initially, the oil industry has raised the value of Nigerian Economy and soon accounted for more than 90 percent of Nigerian exports, as it dominated the market.[5]

The Adverse Impact of Dutch Disease on Nigerian Economy

a) Over-Exploitation of Oil during Civil War in the 1970.

b) Declining oil prices in the market during 1980 and failure of SAP (Structural Adjustment Programme) in 1992.

c) Political instability, corruption and other infrastructural problems.

d) Unemployment estimated about 23.9 per cent in 2011, and 70 per cent of the population lived below the poverty line in 2010, according to the CIA Factbook.[6]

e) GDP (per capita) : $2,800 (2012 est.), country comparison to the world : 180[7]

f) External Debt: $13.12 billion (31 December 2012 est.), country comparison to the world: 94.[8]

Export Concentration of Nigeria

Exports of fuel, manufactured and agriculture as percentage of merchandise exports (1996-2011) [9]

2.

Case II: Dutch Disease in Guinea-Bissau

Background

Guinea Bissau is a country with fertile lands, abundance of water for irrigation, crop friendly climate. However, more than 90 percent of the country’s export earnings through cashew nut exports as the country focuses mainly on exploration of cashew nuts. In Ohio and Biombo, the first cashew plantation was made. But due to unwieldy administrative plans, weak legal systems, and low credit (since Guinea Bissau is a very poor state) often lead to high transaction costs for cashew buyers and exporters, which help decrease the farm-gate price of the raw nuts.[10]

Economy of Guinea Bissau

a) Conflicts and political instability during civil war of 1998 resulted in massive decline of GDP which was reduced by 28 percent. [11]

b) GDP per capita according to (Lopez and Wodon, 2005) would have been 42-43 percent in 2002 if this conflict would not have happened.[12]

c) Damages to public infrastructure amounted to $25-30 million.[13]

d) Delay in holding parliamentary elections resulted in military form of government that suspended the parliamentary proceedings and which led to mass genocide. [14]

Export Concentration of Guinea Bissau

a) Marketing of cashew nuts merchandise exports and imports (in US Dollars) decreased about 45 and 30 percent.[15]However, there is a sudden increase in the export after 2002-2003 period.[16]

Case III: Dutch Disease in Madives

Background

Though Maldives is mainly known for its tourism as largest economic activity, fishery comes in second but catching fish has been dropped since quite a time. A Maldives has limited place for agricultural lands, and there is acute shortage of labourers therefore agriculture and manufacturing sector play a very limited role.[17]

Economy Of Maldives

Skipjack is one of the most valued tuna species in the Indian Ocean. But now there is huge decline in the rate of catching fish. It is due to three reasons:

I] Somali pirate activities making one of the productive fishing areas out of bounds since 2006.

II] Medium sized skipjack move away for some reason but return as big skipjack into Maldives Seas. But as of now the fisherman believe that due to environmental factors, there is absence of large skipjack.

III] Sometimes these medium sized skipjack are also caughtby the Gillnet of Sri Lankan fishermen.[18]

a) GDP:3.073 BILLION(Est.2013)[19]

b) Debt External ($890.8 million US Dollars)

Export Concentration of Maldives

Only fish is exported but now due to uncertain events catching fish has been very low and which is a great concern of Maldives as there is no other alternative Source of Product which can be exported to support their economy.

3.

References

[1] Jason Gould and Katen N. Kapadia, Dutch Disease in Africa : A Case Study of Nigeria and Chad, Available at: <http://s3.amazonaws.com/zanran_storage/rooseveltinstitution.org/ContentPages/15791957.pdf>, accessed on: 06-09-2014.

[2] W.M. Corden, BOOMING SECTOR AND DUTCH DISEASE ECONOMICS, p. 360 , available at: <http://www.jstor.org/stable/pdfplus/2662669.pdf?acceptTC=true&jpdConfirm=true >,accessed on:06-09-2014.

[3] Ibid. N.1 p.52-53.

[4] National Nigerian Petroleum Corporation, History of Nigerian Petroleum Industry, available at : <http://www.nnpcgroup.com/NNPCBusiness/BusinessInformation/OilGasinNigeria/IndustryHistory.aspx>, accessed on : 06-09-2014.

[5]Agbede Moses Oyeyemi, The Growth Implications of Oil Price Shock in Nigeria, Journal of Emerging Trends in Economics and Management Sciences (2013), available at: <http://jetems.scholarlinkresearch.com/articles/THE%20GROWTH.pdf>, accessed on : 06-09-2014.

[6] The CIA World Factbook, (2012), available at: <http://books.google.co.in/books?id=o4lyrrsX0wC&pg=PT2139&lpg=PT2139&dq=cia+factbook+on+nigeria+oil+economy&source=bl&ots=ABaDfUH4f8&sig=9MIN6n1VSyFsiJynvS9sxUaDRXY&hl=en&sa=X&ei=VgALVK2KB9KHuASYYGQDw&ved=0CEYQ6AEwBQ#v=onepage&q=cia%20factbook%20on%20nigeria%20oil%20economy&f=false>, accessed on:06-09-2014.

[7] Ibid.

[8] Ibid.

[9] Tracy Igberaese, The Effect of Oil Dependency on Nigeria’s Economic Growth, p.39, available at:https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0CCQQFjAB&url=http%3A%2F%2Fthesis.eur.nl%2Fpub%2F15396%2FITracy_l_moodledata_temp_turnitintool_793995179._60_1384335874_2108.pdf&ei=0QoLVNyxC5ahugS7YD4Dg&usg=AFQjCNFy9F4nHhwQYxyW_xpNX2_nkLOu5A&sig2=vhQpKa4bMf0NksHJAjkjOA&bvm=bv.74649129,d.c2E, accessed on: 06-09-2014.

[10] Boubacar-Sid Barry, Edward G. E. Creppy, and Quentin Wodon, Cashew Production, Taxation,and Poverty in Guinea-Bissau, available at:<http://mpra.ub.uni-muenchen.de/11181/1/MPRA_paper_11181.pdf>, accessed on : 06-09-2014.

[11] Boubacar-Sid Barry, Conflict, Livelihoods, and Poverty in Guinea-Bissau, (World Bank Publications (2007)), p.11-21, available at: http://books.google.co.in/books?hl=en&lr=&id=5y5Ff4uvePEC&oi=fnd&pg=PR3&dq=guinea+bissau+cashewnuts&ots=V8LdcyqSg0&sig=8ZwCvAk_DC3UW-6kG3Yu__3Wy0M#v=onepage&q=guinea%20bissau%20cashewnuts&f=false, accessed on : 06-09-2014.

[12] Ibid.

[13] Ibid.

[14] Ibid.

[15] Supra, N. 11

[16] Id.

[17] The World Factbook, available at:https://www.cia.gov/library/publications/the-world-factbook/geos/print/country/countrypdf_mv.pdf,accessed on : 06-09-2014.

[18] M. Shiham Adam, Declining Catches of Skipjack in the Indian Ocean –

Observations from the Maldives, available at:

https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0CCIQFjAB&url=http%3A%2F%2Fwww.iotc.org%2Fsites%2Fdefault%2Ffiles%2Fdocuments%2Fproceedings%2F2010%2Fwptt%2FIOTC-2010-WPTT09.pdf&ei=dysLVMXIcueugT4nYCICQ&usg=AFQjCNEj1phZUsk9ky6zFPkCASkV7CVJkA&bvm=bv.74649129,d.c2E, < http://www.iotc.org/documents/declining-catches-skipjack-indian-ocean-observations-maldives>,accessed on:06-09-2014.

[19] The world factbook, available at:https://www.cia.gov/library/publications/the-world-factbook/geos/mv.html, accessed on 06-09-2014.

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