Botswana and a Dutch Disease Essay Example | Topics and Well Written Essays - 1500 words

Botswana and a Dutch Disease - Essay ExampleCherunilam (2008, p. 166) defined Dutch disease as the deindustrialization of a sector caused by the boom in a nonher traded good sector. Basically, a Dutch disease is present when on that point is an excessive utilization of its available congenital resources. As a result, excessive use of natural resources mess trigger a significant decrease in the overall production of goods among the local manufacturing companies. The rationale seat this particular sparing situation is that the selling of these natural resources could make the countrys monetary silver stronger. Therefore, the exportation of finish products coming from the tradable sectors becomes slight attractive in the world market (Pegg 2010). The overvaluation of a currency can cause long-term harm over the economic bring to passance of each country. The posture of trade shocks can lead to serious market failures. Aside from causing market failures in little developed coun tries, Rodrick and Rosenzweig (2010) explained that a strong monetary currency can make the local manufacturers become less competitive in the world market. For this reason, a significant decrease in the demand for goods and services would pixilated a higher unemployment rate in the long-run. The real GDP growth rate in Botswana as of 2010 was 7.5% (U.S. Department of State 2011). However, this particular economic indicator alone is not sufficient to determine whether or not Botswana is suffering from the negative economic consequences of a Dutch disease. With regards to this matter, this report aims to carefully strain the economic variables which may suggest whether or not Botswana is currently experiencing a Dutch disease. In order to perform a full analysis of Botswana economy, this report will focus on observing historical changes in the value of Botswanas currency (Botswana Pula or BWP), changes in the exportation growth, potential sources of capital inflows (i.e. exportatio n of natural resources, foreign direct investment, remittances from overseas workers or incoming of foreign aids), and high levels of unemployment rate. Economic Variables Suggesting whether or not Botswana is Experiencing a Dutch Disease A Dutch disease is often associated with the presence of abundant oil supply. In the case of Botswana, its natural resources are not dependent on oil but more than on the presence of abundant supply of diamonds, copper, and nickel (U.S. Department of State 2011). Even though Botswana is highly dependent on mining, this particular manufacturing only employs 8,000 workers (Pegg 2010). Within this context, we cannot clearly say that the mining industry in Botswana is booming since this particular industry does not literally extract resources from away from the manufacturing or bucolic sectors. The trend and value of Botswanas currency is one of the main economic variables that one should carefully examine to determine whether or not Botswana is cu rrently experiencing a Dutch disease. Even though the currency of Botswana Pulas is not pegged to a specific foreign exchange value, Botswana managed to maintain the exchange rate at the average of 7.3507 Botswana Pulas to 1 US dollar between the periods of September 2011 to March 2012 (Exchange-Rates.org 2012). In case Dutch disease is present, economists recall that a strong exportation of na