Single Commodity Reliance—The Dutch Disease

One of the most important developments leading up to the twentieth century was of course the expansion of global trade. Made possible largely through improved transportation, the economic landscapes of nations all over the world were significantly altered. Resources and commodities became easier to access and significantly cheaper. Nations such as those in Latin America were able to provide exports to the consumption based economies of Europe. Global trade is generally regarded as a net positive, and it is, but it is not exclusively beneficial, particularly for those nations with underdeveloped economies.

The access to British markets in China played a significant role in the economies and politics of Beijing and Shanghai years earlier, eventually contributing to conflict and political tension in the area. However, the author of Latin America Since Independence indicates a more direct negative externality on page 88, saying “in almost all countries one or two commodities made up more than 50 percent of exports, which meant that falling prices for a single commodity could have devastating repercussions throughout the economy”. Professor Holt touched on the exports of Brazil in her lecture on Rio, explaining that 62% of income from exports came from coffee at the time. Decades later, this over-dependence on a single export—usually a natural resource—was coined the Dutch Disease, referencing how the Netherlands’ dependence on natural gas exports resulted in significant economic hardship in the 1970s. While one industry expands, other sectors of the economy fall behind and become less competitive on the international market, leading to unemployment and a lack of international investment. The term is now commonly used to encompass any negative effect resulting from this single resource dependence. However, it is not necessarily true that economies cannot avoid the Dutch Disease. Studies indicate that investing in a diversified economy has helped curtail the effects of single commodity dependence. Whether or not the individual countries experienced the Dutch Disease, Latin America certainly had an unfortunate, if necessary tendency to rely heavily on a single export.

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