Dutch Disease is a term applied to a problem in the 1970 whereby the Netherlands were experiencing massive and sudden inflows of capital from abroad
What was the cause of this sudden influx of capital, and what types of potential problems did it have for the Dutch or could it have for any small single resource country?
What will be an ideal response?
Answer: With the rapid growth of the natural gas industry in the Netherlands in the 1970s, there was growing fear that massive capital inflows would drive up the demand for the Dutch guilder and cause a substantial currency appreciation. A more expensive guilder would then reduce the international competitiveness of other Dutch manufacturing industries, causing their relative decline to that of the natural resource industry. This is a challenge faced by a number of resource-rich economies of relatively modest size and relatively small export sectors.
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