A situation where prosperity of one sector leads to the neglect of other sectors is referred to as
Understanding the Dutch Disease Phenomenon
The question asks about a specific economic situation where significant growth or prosperity in one sector of an economy leads to the decline or neglect of other sectors. This phenomenon is a well-known concept in economics.
What is the Dutch Disease Phenomenon?
The term Dutch disease phenomenon describes the negative impact on an economy of anything that gives rise to a large inflow of foreign currency, such as a sharp increase in the price of a natural resource or a large capital inflow. The original example involved the Netherlands after the discovery of large natural gas reserves in the 1960s. The resulting export of natural gas led to significant foreign currency earnings, which, in turn, had unintended negative consequences for other parts of the Dutch economy.
Mechanism of the Dutch Disease
The typical mechanism involves two main effects:
- The Resource Movement Effect: Labor and capital are drawn away from other sectors (like manufacturing and agriculture) towards the booming sector (like resource extraction) because wages and returns in the booming sector increase.
- The Spending Effect: The increased foreign currency earnings from the booming sector lead to an appreciation of the country's exchange rate. A stronger currency makes exports from the non-booming sectors more expensive for foreign buyers and imports cheaper for domestic consumers. This hurts the competitiveness of the non-booming sectors, often leading to deindustrialization.
Therefore, while one sector thrives due to external factors or resource discovery, other sectors suffer, leading to a potentially unbalanced economy.
Analyzing the Options
- British disease phenomenon: This term is sometimes used informally, but it typically refers to economic challenges faced by the UK in the late 1960s and 1970s, often linked to industrial relations, lack of investment, and macroeconomic instability, rather than prosperity in one sector causing decline in others.
- Dutch disease phenomenon: As explained above, this term precisely describes the situation where the prosperity of one sector (usually resource-based) leads to the neglect and decline of other sectors due to exchange rate appreciation and resource reallocation.
- Spanish disease phenomenon: This is not a recognized economic term describing this specific phenomenon.
- French disease phenomenon: This is also not a recognized economic term describing this specific phenomenon.
Based on the established economic terminology, the situation described in the question aligns directly with the Dutch disease phenomenon.
| Term | Description | Relevance to Question |
|---|---|---|
| British disease phenomenon | Informal term for UK economic issues in late 20th century (industrial relations, etc.) | Not relevant |
| Dutch disease phenomenon | Prosperity in one sector (often resources) hurts others via exchange rate and resource shifts | Directly relevant |
| Spanish disease phenomenon | Not a recognized economic term for this | Not relevant |
| French disease phenomenon | Not a recognized economic term for this | Not relevant |
Revision Table: Key Concepts
| Concept | Explanation |
|---|---|
| Dutch Disease | Economic phenomenon where booming sector prosperity harms others. |
| Booming Sector | Sector experiencing rapid growth (e.g., resource extraction). |
| Non-Booming Sectors | Other sectors of the economy (e.g., manufacturing, agriculture). |
| Exchange Rate Appreciation | Increase in value of domestic currency, making exports expensive and imports cheap. |
| Deindustrialization | Decline in manufacturing sector due to loss of competitiveness. |
Additional Information on Dutch Disease and Resource Curse
The Dutch disease is often discussed in the context of the "resource curse," which is the paradox that countries with an abundance of natural resources tend to have less economic growth, less democracy, and worse development outcomes than countries with fewer natural resources. The Dutch disease mechanism is one way this resource curse can manifest, by undermining the competitiveness and development of non-resource sectors.
Countries can attempt to mitigate the effects of the Dutch disease through various policies, such as:
- Sterilizing foreign exchange inflows to prevent currency appreciation.
- Investing resource revenues wisely, perhaps in infrastructure or education, to boost productivity in other sectors.
- Promoting diversification of the economy.
Understanding the Dutch disease phenomenon is crucial for resource-rich economies to manage their wealth effectively and ensure balanced economic development.
Important Questions from Marketing Management
Which one of the following is not a marketing tactic used for designing customer value ?
Which one from among the following is not a generic strategy as per the generic strategies identified by Porter?
The essential conditions for price discrimination practice to succeed in a different markets are
A. Firms must have strong interdependence per se
B. Firm must have some control over the price of the product
C. Differentiated products and strong entry restrictions
D. Price elasticity of demand must differ in different markets
E. Markets for the products must be separable
Choose the correct answer from the options given below:
Which phrase best completes the statement below?
One of the key tasks of a marketer is to ________ and to create a perception among consumers that the product is worth purchasing.
The firm may go for defensive advertising as per which one of the following approaches?
