Dutch disease, coined by The Economist in 1977 is a term to describe the phenomenon of The Netherlands’s economy after the discovery of natural gas in 1959. Natural gas was being exported massively. The export of natural gas particularly, increases the inflow of foreign currency. Currency appreciation is the most likely impact of massive foreign currency inflow. It makes the country’s other products less competitive on the export market.
Cheap import jumps that gives rise to deindustrialization. Natural gas export has boomed. However, the growth of other sectors of Dutch economy, particularly manufacturing and agriculture sector, was drastically deteriorated. Boosting the income through the export of natural resources tends to deteriorate the growth of other sector is the most likely impact of Dutch disease.
The government would deviate from its aim for growth-oriented economic management such as free trade, bureaucratic efficiency and institutional quality. This would put the economic security of people at risk.
Obviously, this could restrict growth of the rest of the sectors in four ways: The first is the overvaluation of currency. Natural resource boom that helps to export raw materials in an incremental ratio that leads to sharp rise in the inflow of foreign currency. The most likely impact of this is appreciation of real exchange rate. This helps to increase real wages and hence, deteriorates export of manufacturing products.
Secondly, natural resource boom would lead the values of the society to deteriorate. Its repercussion is the change of working manners, from good to worse of government institutions. This would normally lead to stimulate malpractices.
Corruption and rent seeking behavior would take place rampantly. The major income from resource boom has been invested in government consumption rather than investing in other productive sectors of an economy.
Thirdly, the government would deviate from its aim for growth-oriented economic management such as free trade, bureaucratic efficiency and institutional quality. This would put the economic security of people at risk.
Lastly, overconfident in natural resource would lead to deteriorate the quality of human capital as well because of the inappropriate attention in education expenses.
Human Resource Export
Nepal exports human resource in a large volume, constitute over four million youths irrespective of its quality since last three decades. Youths of Nepal migrated formally. It implies that Nepal is sending people officially in different countries of the world to work and live.
The export of human resource in its raw form boosts the economy through remittance, at least in the front of lessening chronic poverty, smoothing consumption, and in turn increasing import.
Remittance contribution in smoothing consumption (both government and private sector) cannot undermine as the government data shows over 80 percent of remittance has been spent on consumption. This is the self-spoken fact that the impacts of remittance in economic development and growth is minimal.
In addition, remittance makes the price of non-tradable goods skyrocketing. Now a days, worker’s remittance has becoming a major source of income. Since then it makes Nepalese economy too dependent on remittance. Migrated youths from their work in foreign land earn a certain amount of money through wages or foreign employment. They send back a portion of their total earning to their home to cover the family expenses.
This has been becoming a booming sector. This constitutes a significant amount of foreign exchange amounted to US$6.9 billion accounted 28.3 percent share in GDP in 2017 up from US$6.6 billion in 2016. This indicates that the inflow of remittance has undoubtedly been raising over the years.
Remittance contribution in smoothing consumption (both government and private sector) cannot undermine as the government data shows over 80 percent of remittance has been spent on consumption. This is the self-spoken fact that the impacts of remittance in economic development and growth is minimal.
Nepal is earning foreign exchange through remittance. Foreign exchange inflow through remittance might have been appreciating Nepalese currency is a subject to investigation because the nation adopted a peg system to determine the rate of foreign exchange so that Nepal loses competitive edge to boost the export in the foreign market indicating a deindustrialization in the economy.
In this context, this paper aims to show the relationship between remittance export, import, manufacturing and agriculture in the Nepalese economy.
Remittance and export
Now it becomes a reality that human resource export to some extent booms the economy. And assume that it gives rise to deindustrialization. It can reduce export.
This trend clearly establishes the inverse relationship between remittance and export. In 1990s, export was greater than the remittance. The trend of export was decreasing while the trend of remittance was increasing.
The declining trend of export and the rising trend of remittance is being continued resulting an export share to GDP in the period 2013-17 comes to down 10.48 percent, while the share of remittance to GDP goes up to 29.47 percent.
For instance, the share of export to GDP was 22.31 percent in the period 1993-97 which declines to 21.85 percent in the period 1998-2002, decrease at the annual growth rate of – (2-1 percent). As against to this, the share of remittance to GDP jumps from 1.20 percent to 3.75 percent in the same period, increase at the annual growth rate of 212 percent.
The declining trend of export and the rising trend of remittance is being continued resulting an export share to GDP in the period 2013-17 comes to down 10.48 percent, while the share of remittance to GDP goes up to 29.47 percent.
To be continued…
Views expressed in this article are the author’s own and do not necessarily reflect the stance of Khabarhub.
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