What economic factor can lead to Dutch disease in a country?

• A. An increase in tourism revenue
• B. A spike in commodity exports
• C. A rise in manufacturing exports
• D. An influx of foreign investments

Answer: (B)

Dutch disease refers to a situation where a country experiences a sudden increase in wealth from natural resources, such as a spike in commodity exports, which subsequently leads to a decline in other sectors of the economy, particularly manufacturing and agriculture. The influx of revenue from these commodity exports often appreciates the national currency, making other exports less competitive on the global market.

As the currency strengthens, domestic products become more expensive for foreign buyers, leading to a decrease in demand for non-resource exports. This can result in a detrimental cycle where the economy becomes overly reliant on the booming resource sector while other productive sectors stagnate or decline.

Therefore, the factor leading to Dutch disease is directly associated with the fluctuations in commodity exports, as they catalyze the economic changes that define the phenomenon. The other options, while they may impact the economy, do not directly contribute to the specific situation of Dutch disease in the same manner as an increase in commodity exports does.