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The
paper argues that the Dutch disease, a
major market failure, affects almost all
developing countries and is an obstacle
to growth. The severity of the disease
varies with the difference between the
'current' or market and the 'industrial'
exchange rate equilibriums. While neutralisation
of the disease is possible, policymakers
face major political obstacles since it
involves taxing exports and reducing wages.
Finally, the author contends, the Dutch
disease may arise not only from natural
resources but also from cheap labour provided
that the 'wage spread' in the developing
country is considerably larger than in
the developed one.
January 6, 2010.
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