The Economy of Venezuela
Dutch Disease and Lost Diversification
With oil revenues driving up the currency and consumption, farming and industry withered, leaving Venezuela dependent on imports.
A classic resource curse pattern.
Overvalued currency
A strong currency made imports cheap and local producers uncompetitive.
Decline of farms
Domestic food production fell, and food imports rose.
Vulnerability
When oil prices fell, there was no other source of foreign currency.
Lesson
Resource booms should be saved and invested in other sectors.
A cheap import
A locally grown product lost out to imports made cheap by the currency.
Thinking a strong currency is always good
It can hurt other exporters.
Key takeaways
- Dutch disease hurts non-oil sectors.
- Food imports rose.
- Vulnerability grew.
- Saving windfalls is wise.
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