Dutch disease is an economic phenomenon that occurs when the discovery or exploitation of a valuable natural resource — such as oil, gas, or minerals — leads to a surge in national income but unintentionally harms other sectors of the economy. The term originates from the Netherlands’ experience in the 1960s after the discovery of large natural gas fields. While gas exports boosted revenue, the Dutch manufacturing sector declined due to changes in currency value and economic structure.

The core mechanism is straightforward: a sudden inflow of foreign currency from resource exports causes the local currency to appreciate. This makes other exports, like manufactured goods or agricultural products, more expensive and less competitive in global markets. Over time, investment and labor shift toward the booming resource sector, while other industries stagnate or shrink.

Overreliance on a single product also exposes a country to volatility. Commodity prices can fluctuate dramatically due to global supply and demand, geopolitical tensions, or technological shifts. When prices fall, countries dependent on one export face sudden revenue shortfalls, leading to budget deficits, reduced public spending, and potential economic crises.

Additionally, resource dependence can discourage economic diversification. Governments may focus on short-term gains from the booming sector rather than investing in education, infrastructure, and innovation. In some cases, the steady flow of resource revenue can contribute to governance challenges, including rent-seeking behavior, corruption, and unequal wealth distribution — sometimes referred to as the “resource curse.”

To mitigate Dutch disease and overreliance risks, countries often implement stabilization funds, invest resource revenues in long-term development projects, and support policies that strengthen non-resource sectors. Diversification and sound fiscal management are essential to ensure that natural resource wealth becomes a blessing rather than a burden.