ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Dutch disease is a shorthand way of describing the paradox which occurs when good news, such as the discovery of large oil reserves, harms a country’s broader economy. It may begin with a large influx of foreign cash to exploit a newfound resource.

Detailed explanation-2: -Although Dutch disease is generally associated with a natural resource discovery, it can occur from any development that results in a large inflow of foreign currency, including a sharp surge in natural resource prices, foreign assistance, and foreign direct investment.

Detailed explanation-3: -Dutch disease is a concept that describes an economic phenomenon where the rapid development of one sector of the economy (particularly natural resources) precipitates a decline in other sectors. It is also often characterized by a substantial appreciation of the domestic currency.

Detailed explanation-4: -The Dutch disease is the process by which a boom in a natural resource sector results in shrink-ing non-resource tradables. This process leads to increased specialization in the resource and non-tradable sectors leaving the economy more vulnerable to resource-specific shocks.