geography MCQ #10522

A development economist comparing two neighbouring countries finds that Country X has significant oil revenues but lower manufacturing output than oil-poor Country Y. This pattern is consistent with which economic geography phenomenon?

geography MCQ #10522

  1. Question 1

    Q1. A development economist comparing two neighbouring countries finds that Country X has significant oil revenues but lower manufacturing output than oil-poor Country Y. This pattern is consistent with which economic geography phenomenon?

    • A) The gravity model of trade, which predicts that resource-rich countries trade less with distant partners
    • B) Dutch disease, where resource export revenues appreciate the national currency making manufactured exports uncompetitive and hollowing out the industrial base
    • C) Comparative advantage theory, which suggests that Country X rationally specialises in oil and imports all manufactures
    • D) The product life cycle model, predicting that Country X will eventually develop manufacturing once its oil revenues finance industrialisation

    Answer: Dutch disease, where resource export revenues appreciate the national currency making manufactured exports uncompetitive and hollowing out the industrial base

    Explanation: Dutch disease describes how large natural resource revenues drive up a currency's exchange rate, making manufactured exports uncompetitive and leading to a hollowing out of the industrial sector — a pattern observed in several oil-rich developing economies.