International cooperation - Research Paper Example

A country therefore may win from exporting one resource but lose a lot on other exportable commodities which may become expensive in nature. It is also pertinent to note that due to higher demand for factors of production in such industries, there is a shortage of labor for other sectors of the economy. This increases the cost of production for other countries and thus making them less competitive in nature. (Corden & Neary, 1989) There are many countries which have been suffering from this phenomenon and the economic mismanagement has resulted into much of the economic damage for them.

During 1980s and 1990s, countries like Nigeria faced the consequences of this. Even developed economies like Australia and Canada faced this situation also. Dutch disease is a relationship between the manufacturing sector and increase in exploitation of the natural resources. The overall mechanism is based upon the assumption that strong inflows of foreign currency due to export of natural resources will appreciate the currency of the country and thus may result into nation’s other exports more expensive to export.

Though it is normally associated with the natural resources however it can also be referred along with the sharp increase in foreign inflows, foreign direct investment as well as a surge in the prices of natural resources. The core model is based upon non-traded goods sector and two traded goods sector i.e. the booming and the lagging sector. Booming sector is normally based upon the extraction of oil and other natural resources including gold, copper, coffee or cocoa. The lagging sector of the economy is generally based upon the agriculture sector of the economy as well as other manufacturing sector.

(Hausman & Rigobon, 2002) There are two possible consequences of this phenomenon i.e. changes in the labor as well as spending. When booming sector starts to pick up, the overall demand for labor