Aid and the Dutch Disease in Low-Income Countries: Informed Diagnoses for Prudent Prognoses

by Mwanza Nkusu

This paper demonstrates that the Dutch disease need not materialize in low-income countries that can draw on their idle productive capacity to satisfy the aid-induced increased demand. Diagnoses on, and prognoses for, the Dutch disease should take into account country-specific circumstances to avoid ill-advised policies. The paper emphasizes that using public resources inefficiently can be more painful than real exchange rate appreciations, which may not necessarily embody the Dutch disease.

20 pages, Kindle Edition

First published March 1, 2004