Bolivia and the Dutch Disease: What are the Risks and How to Avoid Them?

Since the beginning of the 19th century, the Bolivian economy has always been highly dependant on its natural resource production, and therefore has always been quite vulnerable to external shocks. During the 80’s and 90’s, Bolivia was a large exporter of different minerals (mainly gold and tin), and since 2003 it has become a large gas exporter. It is easy to understand how a negative price shock, for example, can have a negative impact on such an exporting economy. To illustrate this, we can see how Bolivia has suffered from negative price shocks on tin and gas during the 80’s: the main result was an approximate 10% cumulated GDP loss during the price shock1. But a country can also suffer from a positive international price shock for a natural resource that it is exporting. One of the negative consequences of a positive shock (for example a sharp price and volume increase) in the resource based export sector on the other exporting sectors of the economy is called the Dutch Disease.