Page 82 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.71, # 1, 2014, pp. 80-98

Migration of investment and labor force to booming resource extraction and service sectors

affects manufacturing sector. Obviously, it loses capital and labor force.

But migration effect is not the only one. Enforcement of local currency due to inflow of

foreign currencies capital directly affects the foreign market competitiveness of the manufacturing

products. The problem is that manufactured products are usually high value-added goods, which

world market competitiveness is highly sensitive to the exchange rate of domestic currency.

At the same time, publications on the problem point out the accompanying growth of

corruption in the country exposed to Dutch Disease. It is postulated in the Rent-seeking Theory.

But, at the same time, data of Di John (2011, - 167-184) witnesses that there is no proper

correlation between mineral resource dependency of economics and corruption.

As a final result, the country which experiences Dutch Disease appears in a position when

it is highly dependent on one export’s good (mainly, mineral resource), its income is highly

sensitive to world resource market fluctuations and the territory experiences the process of de-

industrialization. Nevertheless, it is necessary to mention that the whole concept of Resource

curse or Paradox of Plenty which are usually proven with the phenomenon of Dutch Disease

remains debatable. There is also a point of view on the Resource course as exaggerated problem

or even wrong concept (Saad-Filho, 2013: 1-21).

The purpose of present paper was to develop simplified and more “visual” model of Dutch

Disease suitable for non-specialist and apply such simplified analysis for the study of typically

resource rich country. In present study Venezuela is subjected to the analysis. Venezuelan

economics was studied in a few works. There is paper of Auty (1986: 325-338), done relatively

long ago, that detected failure of government efforts to effectively transfer extra incomes from

oil sector into the development of manufacturing (mainly metals production) and sustainable

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