Dutch Disease and Its Impact on Papua New Guinea's Economy: A Valid Argument?

Introduction 

Dutch Disease is a phenomenon that occurs when a country experiences a boom in natural resource extraction, leading to an appreciation of its currency and a decline in other sectors of the economy. This phenomenon has been observed in several countries, including the Netherlands, Australia, and Papua New Guinea (PNG). In this blog, we will discuss the impact of Dutch Disease on PNG's economy and whether the argument is valid.

The Impact of Dutch Disease on PNG's Economy

The impact of Dutch Disease on PNG's economy has been a subject of debate among economists and policymakers. Some argue that the boom in natural resource extraction has led to an appreciation of the kina (PNG's currency), making imports cheaper and hurting other sectors of the economy. Others argue that the impact of Dutch Disease on PNG's economy is limited, as the other economic sectors outside mining are small and cannot be affected too much.

 Is the Argument Valid?

The argument that Dutch Disease is affecting PNG's economy is valid to some extent. The appreciation of the kina due to the boom in natural resource extraction has led to inflationary pressures and a decline in other sectors of the economy. However, the impact of Dutch Disease on PNG's economy is limited, as the other economic sectors outside mining are small and cannot be affected too much. Moreover, the recent growth in PNG's economy, buoyed by higher commodity prices, suggests that the country's economy can grow faster.

Conclusion

Dutch Disease is a phenomenon that occurs when a country experiences a boom in natural resource extraction, leading to an appreciation of its currency and a decline in other sectors of the economy. The impact of Dutch Disease on PNG's economy is a subject of debate among economists and policymakers. While the argument that Dutch Disease is affecting PNG's economy is valid to some extent, the impact is limited, as the other economic sectors outside mining are small and cannot be affected too much. With the right policies and practices in place, the management of natural resources in PNG can be done in a way that promotes sustainable development, protects the environment, and benefits local communities.

This is the first series of blogs discussion of the political economy

Citations

[1] https://www.worldbank.org/en/news/press-release/2022/09/14/png-economy-returns-to-growth-buoyed-by-higher-commodity-prices

[2] https://onlinelibrary.wiley.com/doi/full/10.1002/app5.205

[3] https://www.imf.org/en/Publications/WP/Issues/2016/12/31/The-Macroeconomic-Effects-of-Natural-Resource-Extraction-Applications-to-Papua-New-Guinea-40623

[4] https://artnet.unescap.org/publications/working-papers/papua-new-guinea-and-natural-resource-curse

[5] https://www.wallstreetmojo.com/dutch-disease/

[6] https://thekeep.eiu.edu/cgi/viewcontent.cgi?article=5650&context=theses