Dutch Disease
Definition
Dutch disease is an economic phenomenon in which a boom in natural resource exports leads to currency appreciation and a decline in the competitiveness of other tradeable sectors, particularly manufacturing and agriculture. The term originated from the Netherlands’ experience after discovering North Sea gas.
Context
Oman exhibits some symptoms of Dutch disease, with its oil wealth historically channelling investment and labour toward the hydrocarbon sector at the expense of other industries. The dollar peg partly mitigates exchange-rate effects, but domestic cost inflation has affected non-oil sector competitiveness.
Example
When high oil revenues flow into Oman’s economy, domestic prices for labour, land, and services rise, making it more expensive for manufacturers to operate competitively against imports from lower-cost countries.