Dutch Disease: Did it Affect Turkish Economy?
Dutch Disease is an economic problem that occurs as a result of the sudden and excessive growth of a sector in any country, as the production in other sectors is no longer attractive and the resources are directed to the growing sector. It is usually formed as a result of the exploitation of newly discovered large reserves of natural resources.
For example, suppose a country discovers large oil reserves within its borders. Let this country be an oil importing country before. The country is willing to reduce its oil imports and use its own resources as a result of the new reserves it has discovered. Whereby, production factors such as labor, capital, technology and land within the country will be used to extract and process the large oil reserves discovered, because the capitalists will not want to miss the opportunities in this growing new sector and will want to benefit from the wealth that will fall to their share.
In consequence of the rapid shift of all these production factors to the new sector, some problems will arise in other sectors. This situation particularly hits the manufacturing industry. The manufacturing industry of the country in our example will begin to experience shortages of labor, capital, and technology. Therefore, domestic production will decrease. As a result, exports will decrease and imports will increase.
The economy, which had grown rapidly when oil reserves were first discovered, would begin to stagnate. At the same time, the amount of demand that grows as a result of the rapid enrichment experienced with the discovery of the reserve will be unrequited with the decrease in production and inflation will increase.
This disaster first occurred in the Netherlands in 1959 as a result of the discovery of the Gröningen Natural Gas reserve, and therefore it has been referred to as the Dutch disease in the literature. The term was first used in 1977 in the article The Dutch Disease, which appeared in the famous journal The Economist.
Did it Affect Turkish Economy After 2008 Crisis?
Turkey, which has the status of a developing country, is one of the countries where dollar investment has increased considerably after the 2008 crisis. Turkey generally used this foreign currency entering the country for investments in the construction sector.
As it is known, the investment made in construction is called “dead investment” because while the built structures cause rapid growth in the short term, the return is very low in the long term. For this reason, it is a type of investment that is very popular with politicians.
Unfortunately, Turkey could not use this opportunity and with the return of the dollar to its homeland after 2013, a period of stagnation began in all sectors, especially in the construction sector. Between 2008 and 2013, the USD/TRY parity was between 1.10–1.70 and the Turkish people lived in a wealth of prosperity that they had never experienced before.
However, this process did not last long as a result of the misuse of resources, and after 2013, the Turkish Lira began to lose value against foreign currencies. Inflation began to rise and production began to decline.
Some economists say that Dutch Disease appears after discovering a new natural resources, so, they claim that, a rapid growing in construction sector in Turkish economy was not an instance of Dutch Disease.
However, a rapid growth in construction sector decreased the amount of manufactured goods. Production factors moved to that sector and by time, export decreased and import increased because manufacturing sector was not attractive to the investors anymore. Hence, I believe that, in between those period, Turkish Economy faced Dutch Disease.
You can also watch the youtube video about “Dutch Disease” in WOSS ACADEMY Youtube channel that created by me:
