Dutch Disease is a term given to the changes in the Dutch economy that occurred as a result of the discovery and development of large offshore natural gas fields. Many other countries with natural resources have experienced similar situations.
Factors creating a Dutch Disease Scenario:
(1) occurrence of a lucrative industry in a country
(2) exports from this industry and/or foreign investment causes the country's currency to become very strong
(3) exports from other industries become too expensive in other countries due to the strong currency and decrease significantly
(4) imports competing with the other industries in the country are cheaper than domestic products
Investment and resources are:
(1) directed to the lucrative industry to maximize profits
(2) diverted from other industries, making them less competitive over time
All of these factors create an economic imbalance that can have negative consequences if a problem occurs. Problems that may arise include:
(1) the lucrative industry suddenly stops being lucrative
(2) the lucrative industry is unable to absorb workers displaced from other industries
(3) the country does not have a diversified economy
(4) excessive protectionism is implemented to reduce imports
These changes are not limited to countries. Any organization (such as hospitals) with one or two lucrative divisions may neglect less productive ones.
