Wednesday, July 31, 2013

Fracking and the Dutch Disease

From CrowdSourced: Here’s what Wonkblog readers are saying about the impact of shale gas - link.

From the website:

"Reader “David Ke” raises an interesting point about the risk of “Dutch Disease,” the phenomenon in which countries that produce large amounts of natural resources have a resulting rise in the value of their currencies, which in turn makes exporters less competitive, hurting job creation.

Dutch disease will rear its ugly head as oil imports steadily give way to natural gas exports. The U.S. Dollar will appreciate, rendering manufacturing exports less competitive. Resource extraction has long been a capital-intensive (aka not labor-intensive) industry, whereas manufacturing requires a larger amount of R&D workers, salespeople, service people, etc. This is why the discovery of oil in the North Sea produced unexpected consequences for The Netherlands. Perhaps the decline in competitiveness for manufacturers will be offset by American natural gas companies who export their expertise and equipment as the fracking boom goes global. That would indeed be a welcome development. Cheaper domestic energy may even give our chemical industry a competitive edge, in the short run. That is, before we begin exporting LNG and other countries start developing their own shale gas resources."

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