4 ms·

The resource curse and the Dutch disease are two distinct, but linked, phenomena. The long and short of the dutch disease is that if you introduce a revenue so

The resource curse and the Dutch disease are two distinct, but linked, phenomena. The long and short of the dutch disease is that if you introduce a revenue source that is independent of the rest of your economy and pour all of the money into your economy, it will cause your currency to appreciate, making every product made in your country less competitive. So even while your country keeps getting richer through oil revenues, all the rest of your economy stagnates or decays, until you import most of what you consume and are wholly dependent on your oil revenues. Note that this is not limited to oil. The Spanish went through this in the 16th and 17th centuries because of silver imported from the new world.

earljwagner 11y ago
Sounds like the San Francisco Bay Area.
josh64 11y ago
Interesting that Australia (Western Australia in particular) still hasn't learned this lesson.
- dredmorbius 11y ago
  The effect seems different for regions of countries rather than countries as a whole. For most of the first half of the 20th century, the Saudi Arabia of the world, in terms of oil extraction, was the United States. But the situation was moderated by a few factors, at least as I see it: 1. The US had an industrial capacity (though much of that developed over this period), largely in the northeast. Much of the oil production was in economically underdeveloped regions of the country, particularly Texas and Oklahoma. 2. There wasn't a large world market for oil initially. Oil demand was being built up as supply was established. Flooding the market with cheap oil money simply didn't happen. Actually, demand was so low relative to extraction costs that oil prices hit a low of two cents per barrel after the 1930 East Texas Oilfield discovery (see Daniel Yergin's The Prize for an extended discussion of this). 3) WWII. The economic climate from 1930 - 1945 was not one of what we consider conventional growth markets. Initially the problem was the Great Depression, during which global economic activity contracted markedly. Then came the command economy of WWII. In the aftermath, the US was both the sole oil and economic power left standing. 4) By the time other countries were establishing themselves as substantial consumers of oil, the US itself had begun importing oil from Saudi Arabia. I'm not aware of formal economic treatments of this, though it strikes me that the US experience was significantly different from that of, say, Argentina, Saudi Arabia, or even Russia / the USSR.

earljwagner 11y ago

Sounds like the San Francisco Bay Area.

josh64 11y ago

Interesting that Australia (Western Australia in particular) still hasn't learned this lesson.

dredmorbius 11y ago
The effect seems different for regions of countries rather than countries as a whole. For most of the first half of the 20th century, the Saudi Arabia of the world, in terms of oil extraction, was the United States. But the situation was moderated by a few factors, at least as I see it: 1. The US had an industrial capacity (though much of that developed over this period), largely in the northeast. Much of the oil production was in economically underdeveloped regions of the country, particularly Texas and Oklahoma. 2. There wasn't a large world market for oil initially. Oil demand was being built up as supply was established. Flooding the market with cheap oil money simply didn't happen. Actually, demand was so low relative to extraction costs that oil prices hit a low of two cents per barrel after the 1930 East Texas Oilfield discovery (see Daniel Yergin's The Prize for an extended discussion of this). 3) WWII. The economic climate from 1930 - 1945 was not one of what we consider conventional growth markets. Initially the problem was the Great Depression, during which global economic activity contracted markedly. Then came the command economy of WWII. In the aftermath, the US was both the sole oil and economic power left standing. 4) By the time other countries were establishing themselves as substantial consumers of oil, the US itself had begun importing oil from Saudi Arabia. I'm not aware of formal economic treatments of this, though it strikes me that the US experience was significantly different from that of, say, Argentina, Saudi Arabia, or even Russia / the USSR.