easy · GMAT Verbal
Passage: The 'resource curse,' also known as the Dutch Disease, refers to the paradox that countries with an abundance of natural resources, such as oil or minerals, often experience less economic growth and worse development outcomes than countries with fewer resources. When a nation discovers a valuable resource, its currency typically appreciates, making other exports like manufacturing and agriculture more expensive and less competitive on the global market. Furthermore, the economy becomes dangerously dependent on a single commodity, making it vulnerable to price fluctuations. Governments in these nations also tend to focus on 'rent-seeking', capturing resource wealth, rather than investing in human capital or infrastructure. This neglect of the broader economy can lead to long-term stagnation once the resource is depleted.
Based on the passage, why might a discovery of oil harm a country's manufacturing sector?
- Because manufacturing companies are legally obligated to shut down operations whenever oil is found.
- Because oil functions as a direct and immediate substitute for nearly all manufactured consumer goods.
- Because the discovery causes the national currency to rise in value, making manufactured exports more costly.
- Because the government immediately seizes all manufacturing plants in order to store the newly discovered oil.
- Because the rapidly booming oil industry abruptly absorbs every worker who was previously employed in manufacturing.
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