The following diagram is a simplified depiction of what is known as the ‘’Dutch Disease’’ or the curse of plenty. In short, it is the situation faced by a number of economies who were suddenly able to export large amounts of a natural resource they possess, and the effects of such a policy is reflected by the diagram. Loosely based on the Australian experience, this diagram attempts to portray the effects of such a ‘’disease’’ on the rest of the economy and what happens to the people and their currency after the ‘’delay’’.
Hey Mo it would be interesting to see how international pressures and foreign investment affect the natural resources depletion, my guess is that it would create a reinforcing "dependency theory"loop. There could also be some exogenous factors such as political or environmental regulations that may balance the depletion, but obviously these policies are rarely implemented and if they are it is usually too late.
ReplyDeleteMo,
ReplyDeleteAn interesting problem. I remember discussing with you in my office. The dynamics can be quite complex here. My only suggestion is that you need to offer a more complete narrative explanation of the feedbacks and causal links represented in the diagram. Unless someone has some economics background, they cannot necessarily follow what's happening just by reading the CLD. This is an important part of communicating your reasoning.
Finally, here's some suggestions about your CLD
1. The link from Cost of production to Production + employment should have "O", not "S" polarity, right? Otherwise, the feedback is reinforcing!
2. Your placement of the BII and BIII loop identifiers leave some ambiguity as to which loops they identify. I think the BIII identifier should go straight to the right of "value of currency."
3. The link from GDP to Purchasing power is redundant...it refers to the same causal forces that run from GDP to Value of Currency to Purchasing power (though I vaguely recall that we may have talked about this and I've just missed your reasoning....that's why your written narrative is important!)
4. I'm having trouble understanding how the CLD illustrates the "Dutch disease" syndrome. Again...your written explanation is critical here. You need to help the reader see how the CLD shows where the behavior of interest comes from.