Definition
From (Corden 1984):
The term Dutch Disease refers to the adverse effects on Dutch manufacturing of the natural gas discoveries of the nineteen sixties, essentially through the subsequent appreciation of the Dutch real exchange rate [footnote].
[footnote] The first printed reference to the term I have found is in the article “The Dutch Disease” in The Economist November 26th 1977, pp. 82-3.
After the discovery of this large natural gas field in 1959, the Dutch currency became stronger compared to other nations thanks to increased exports. However, the side effect was a loss in competitivity of other exporting sectors which suffered from the stronger currency.
This particular event illustrates a more general principle whereby influx of foreign currency from the sale of natural resources can lead to a decline in other industries, such as manufacturing and agriculture. This can lead to a reliance on the export of natural resources and a lack of diversification in the economy.
Bibliography
- W. M. Corden. . "Booming Sector and Dutch Disease Economics: Survey and Consolidation". Oxford Economic Papers 36 (3). Oxford University Press:359–80. https://www.jstor.org/stable/2662669.