DYK? – 4 – Dutch Disease

During the 1960’s huge reserves of natural gas were discovered in Netherlands which resulted in huge revenues and huge windfall profits by export of natural gas.
But this had a very adverse reaction on other sectors of Dutch economy.
Due to huge inflow of money, the cost of production of other goods and services in Dutch economy increased, thus reducing the comparative advantage of these industries. This increase in cost of production was due to strengthening of the currency.
Also, the labor was more attracted towards the energy sector as that was growing and had more opportunities (Direct-deindustrialization). Labor also moved away from the tradable sector to non tradable ones. (Indirect-deindustrialization)
This phenomenon of adverse effect of discovery of a natural resource on the manufacturing sector of an economy is known as Dutch Disease.

Perhaps this understanding can also be applied to why the oil rich nations of the Middle East have no other industries/sectors worth speaking of.