The Dutch Disease and its Effects on the Economy: Comparison of Norway and Russia

Abstract

This thesis discusses the meaning of the term “Dutch disease”, and the main effects that it has on the economy based on the existing literature and data available. Dutch disease is a negative relationship between the natural resource discovery, or any other large inflow of the foreign currency, and eco- nomic growth. This literature review focuses on how Norway successfully avoided the disease, and compares it with Russia, which has shown noticeable symptoms. Russia suffers notably because of its high dependence on oil, and sensitivity to oil prices. This paper emphasizes the kind of symptoms Russia has experienced, and the strengths and weaknesses of its economy. Examining these factors will highlight why Russia is experiencing difficulty. The findings show that Norway has been a stable democracy, and its political and economic institutions were developed already before the oil discov- ery. In turn, Russia has a lack of policies and institutions, and their inefficient use and development. The main objectives were to define the Dutch disease phenomenon, find out the secret behind the Norway’s success, and investigate the reasons why Russia fails.