Jul 03, 2019 dutch disease is an economics term that refers to the negative consequences arising from large increases in the value of a countrys currency. The centers for disease control and prevention cdc established an office in nigeria in 2001. Dutch disease and nigeria oil economy the paper examines why the enormous promises held out by the inflow of revenues from oil export has not made any significant improvement in the lives of nigerians and the economy as a whole. At nigerias independence in 1960, agriculture was the mainstay of the nigerian economy. Timeseries annual data for the period 196686 are used for algeria, ecuador, indone sia, nigeria and venezuela. The economist explains what dutch disease is, and why it.
One aspect of the so called resource curse is an inverse relationship between natural resource dependence and economic growth. Pdf an economic analysis of dutch disease in nigeria. Norways catching up with and forging ahead of its neighbors growth studies show, counter to intuition, that the discovery of a natural resource may be a curse rather than a blessing since resourcerich countries grow slower than others. By the end of the eighteenth century, the area that was to become nigeria was far from a unified. Will falling oil prices resolve nigerias dutch disease. The term originated in holland after the discovery of north sea gas. Assessment of the nigerian poultry market chain to improve biosecurity november 2008 1 1 introduction 1. However, there are a number of large commercial players in the sector most of whom are located in southwestern nigeria, in close proximity to lagos and its large market of 17. The dutch disease refers to the problems associated with a rapid increase in the production of raw materials like oil and gas causing a decline in other sectors of the economy. Section 2 briefly presents the core model of dutch disease and discusses the abovementioned dutch disease models of an oil boom. According to ilugbuhi 1968, peasant agricultural production for export provided.
Apr 28, 2009 the traditional explanation for the resource curse is the dutch disease or deindustrialization. Olagunju this study examines whether the dutch disease a resource boom leading to the decline of the erstwhile tradable sector is present in nigeria in the light of the rejection of the dutch disease thesis in other studies on nigeria. Section 3 presents the estimated model and the empirical results. The african continent is endowed with rich natural resources, including minerals and fossil fuels. The deindustrialization of a nations economy that occurs when the discovery of a natural resource raises the value of that nations currency, making manufactured goods less competitive with other nations, increasing imports and decreasing exports. The case for nigeria to move away from its reliance on oil is quite compelling, as the country is almost a textbook case of the dutch disease, coupled with oilfueled political instability. Dutch disease the economist 1977 1960s discovery of large natural gas deposits in the north sea subsequent shift in resources and decline in the manufacturing sector 4. It just needs the political will to see through structural reforms. The nigerian complaint research points to a new explanation of dutch disease.
Also, up until the 1960s agriculture was the predominant exporting sector of the economy contributing to as much as 95 % of exports. Dutch disease and nigeria oil economy african research. The deindustrialization of a nations economy that occurs. This period was the beginning of dutch disease i n nigeria. Ben the currency value is a function of supply and demand. However, its becomes a paradox when a substantial body. A detailed analysis by westin 2004, based on data through 2003, concluded that, despite the existence of some dutch disease symptoms, russia had not contracted the fullblown disease by end2003. The results show that import demand increased significantly in response to the boominduced squeeze on the. The primary sectors of the economy and the dutch disease. This paper sets out to examine the relevance of the dutch disease model to the circumstances of nigeria, and by extension, other african countries, with particular emphasis on the manufacturing sector. Escaping the natural resource curse and the dutch disease. Jan 14, 2018 the term dutch disease was first coined by the economist in 1977 to describe the decline in netherlands manufacturing after the discovery of gas fields in the early 1960s. Dutch disease, impulse response function, variance decomposition, cointegration, nigeria, maximum eigen value, hypothesis. Since that article, economists have proposed other dutchdisease effects.
This study is an economic analysis of dutch disease in nigeria from 19812014 adopting the cointegration regression of fully modified ordinary least squares fmols and canonical cointegration regression ccr as the modelling approach. Dutch exports of goods and services, 196097 % of gdp source. Since the oil discoveries in the early 1970s, oil has become the dominant factor in nigerias economy. By the middle of the 1970s the dutch disease took on an undesirable form in other oil exporting nations and in some developing and aiddependent nations. The dutch disease term was first introduced in the economist magazine in 1977 to analyze the economic. The study used the econometric procedure in testing for the presence of the dutch disease in the nigerian economy by using the estimation of the long term relationship between the agricultural output to the gdp and its determinants in equation one, and manufacturing output to the gdp and its determinants in equation two. Historically, nigerian economy has been an agrarian economy with agriculture dominating gdp at least until the 1970s.
A paradoxical situation in which countries with an abundance of nonrenewable resources experience stagnant growth or even economic contraction. Do migrant remittances cause dutch disease in nigeria. Rajan and arvind subramanian december 2009 we examine the effects of aid on the growth of manufacturing, using a methodology that exploits the variation within countries and across manufacturing sectors, and corrects for. However, when the gas began to flow out of the country, its ability to compete against other countries exports declined. The booming sector is usually the extraction of natural resources such as oil. French and british competition later undermined the dutch position, and britain became the dominant slaving power in the eighteenth century. Having a well performing economy before the discovery of crude oil, nigeria was expected to lift her economy to a faster economic prosperity and development however the reverse has been the case since 1980s. Aid, dutch disease, and manufacturing growth forthcoming in the journal of development economics raghuram g. Norways catching up with and forging ahead of its neighbors growth studies show, counter to intuition, that the discovery of a natural resource may be a curse rather than a blessing since. Public expenditure increased greatly, as did the countrys access to international capital markets. Introduction that the country is progressively becoming unable to cope.
The nigerian poultry sector is extremely fragmented with most of the chicken raised in backyards or on poultry farms with less than 1,000 birds. The booming sector is usually the extraction of natural resources such as oil, natural gas, gold, copper. Dutch disease is the phenomenon that has its origins in the immiserising growth hypothesis which argued that increase in the export sector can lead to misery for the economy if the terms of. Evidence of dutch disease emerged during this period. Since the oil discoveries in the early 1970s, oil has become the dominant factor in nigeria s economy. That is, revenue from natural resources hurts traditional manufacturing through an increase in the exchange rate. The primary sectors of the economy and the dutch disease in. Sep 21, 2011 dutch disease the economist 1977 1960s discovery of large natural gas deposits in the north sea subsequent shift in resources and decline in the manufacturing sector 4. The idea that resources might be more of an economic curse than a blessing began to emerge in debates in the 1950s and 1960s about the economic problems of low and middleincome countries. A twoequation model is estimated to determine real import demand and the real exchange rate. Moreover, norway increased its ppp gdp per capita very significantly, leaving behind its neighbours. The paper examines why the enormous promises held out by the inflow of revenues from oil export has not made any significant improvement in the lives of nigerians and the economy as a whole. The dutch disease natural resources and especially crude oil are special commodities with some extraordinary effects on the overall economy.
The effects of sectoral changes and government policies on import demand in nigeria are examined, in the context of the oil shocks of the 1970s and 1980s. Dutch disease is a paradoxical situation where good news for one sector of the economy, such as the discovery of natural resources, results in a negative impact on the countrys overall economy. However in 1711 the spectator wrote it is generally observed, that in countries of the greatest plenty there is the poorest living, so this was not a completely. Dutch disease and mismanagement of resources in nigeria. The economist explains what dutch disease is, and why its. Many african countries have also struggled to enable rising living standards after the discovery of oil. The findings diagnose nigeria to be suffering more from the nigerian disease which is attributable to institutional quality i. The spike in oil business led to the decline of other exports. The classic economic model describing dutch disease was developed by the economists w. Recent nigerian development and the dutch disease macroeconomic trends in nigeria. Oecd reports on netherlands, various issues 1 according to the handbook of development economics the dutch disease is defined as. This study, therefore, investigated whether the massive inflow of remittances into the economy causes dutch disease. In recent years a number of african economies have seen an accelerated gdp growth rate. The results of the study indicate that, while the model has contributed to our understanding of some of the processes of change, it has left important gaps in our.
Dutch disease definition, disadvantages, and how to avoid. A wellknown paper, published five years later, identified other means by which commodity booms cause economic trouble. A wellknown paper, published five years later, identified other means by which. Is oil in nigeria a growth cure or a resource curse. The results of the study indicate that, while the model has contributed to our understanding of some of the processes of change, it. Africa is a region abundant in natural resources and rich in vast oil reserves. The dutch disease is a resource reallocation process away from less pro. In the model, there is a nontradable sector which includes services and two tradable sectors. So infamously named after the dutch experience, the dutch disease is a syndrome where exploitation of abundant natural resource exerts a.
Pdf analysis of dutch disease phenomenon in case of venezuela. The dutch disease and the development of the manufacturing. Similarly, roland 2005 argued that it is premature to conclude that the russian economy is experiencing dutch disease. It is primarily associated with a natural resource. Dutch disease refers to some possibly unpleasant side effects of a boom in petroleum or other mineral and agricultural commodities.
As a result, multiple challenges have arisen including. In many cases the petroleum industry has played a pivotal role in this growth. Production and exports in africas resourcerich economies are highly concentrated in natural resourcebased products, but these economies show little evidence of structural change toward high valueadded activities outside the natural resource sector. Dutch disease is an economics term that refers to the negative consequences arising from large increases in the value of a countrys currency.
Theoretically, such a large inflow of foreign currency into an economy may lead to dutch diseases. The relevance of dutchdisease model in the emerging economy of nigeria 34 7 summary and conclusion th e nigerian economy experienced a remarkable boom in its resource sector within the. Following the collapse of oil prices in 1982 and the rise in real interest rates, nigeria experienced. Since that article, economists have proposed other dutch disease effects. The dutch disease manifests many symptoms, chief among which is the inability of local productive economy to compete as a result of bloated value of. The dutch disease takes root in a nation in the wake of a boom in the export of a commodity. Pdf the relevance of dutchdisease model in the emerging. This implies that the government should strive towards long term economic development and diversification by enhancing, among others, its. Pdf on jan 1, 2017, g anjande and others published an economic analysis of dutch disease in nigeria find, read and cite all the research you need on researchgate. This study examined nigeria crude oil production and its impact the economic growth from 19812014. Assessment of the nigerian poultry market chain to improve. The strong exchange rate that followed helped to cheapen imports of competing food items as well as agrobased and industrial raw materials.
The netherlands sought to tap this resource in an attempt to export the gas for profit. Research points to a new explanation of dutch disease. The political and economic situation of venezuela has been dominating world media for quite some time now. In an economy in full employment equilibrium, a permanent increase in the inflow of external funds results in a change in relative prices in favour of nontraded goods services and construction and against nonoil traded goods manufacturing and agriculture, leading to. The dutch took over portuguese trading stations on the coast that were the source of slaves for the americas. Netherlands influx of revenue from natural gas led to increasedspending on social programs 5. Dutch disease first became apparent after the dutch discovered a huge natural gas field in groningen in 1959. What happened to this petrostate with the largest oil reserve in the world. I look forward to reading your book, the dutch disease in africa amanda hicks jun 6, 2007 at. Nigeria suffering from dutch disease politics nigeria.
Cdc works with federal and state ministries of health to address hiv, tuberculosis, malaria, and immunization for vaccinepreventable diseases as well as on strengthening laboratory, surveillance, and workforce capacity to respond to disease outbreaks. The revenue it generates when prices are high tends to cause dutchdiseases, high oil revenue raises exchange rates, promotes an adverse balance of payments when prices fall, reduce the incentive to risk investment in nonoil sectors like agriculture and manufacturing. The objective was to investigate the impact of nigeria crude oil production on economic growth, test the dutch disease and the classical paradox of plenty in nigeria. Nigeria discovered oil in 1956 and began to export oil in 1958. New evidence from ardl bound test analysis introduction based on the conventional economic rationale, an increasing stock of assets in a country brings about greater opportunities for economic growth. Economic scholarsanalysts studying the trend in many resource rich countries have noticed a negative developmental pattern in most of them, what they have come to call the resource curse or the dutch disease. A model of dutch disease when studying dutch disease, researchers typically model the economy as consisting of three sectors. Oilboom, agricultural development, neglect, dutch disease, natural resource curse, nigeria. The paper traces the problem to the inherent contradictions, anomalies, and problems associated with countries that depend on oil as their primary export commodity. The uk process of deindustrialisation was sped up by the. The findings show that, dutch disease hypothesis exist in nigeria and cannot be ignored in nigeria using these economic variables. Dutch disease and nigeria oil economy otaha african. The logic of the simple dutch disease theories can be described as follows.
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