Resource-rich Economies Research Articles

Mining’s impact on the competitiveness of other sectors in a resource-rich economy: Australia since the 1840s

Australia’s several major mining booms since the 1840s have impacted positively on national economic growth and non-trivially on the competitiveness of other sectors of its economy. This paper shows the latter to be consistent with economic theory only when sectoral policy developments are taken into consideration. It reveals several features that make the sectoral composition of Australia’s economy unusual. One is that the manufacturing share of GDP was unusually high until protectionism was phased out from the 1970s. Another is that the farm sector continued to enjoy a strong comparative advantage despite mining booms and high rates of assistance to import-competing manufacturers. Also, the agricultural and services sectors’ shares of GDP remained fairly constant rather than diverging during 1860–1960. The paper concludes by drawing out implications for future policies.

Recovery from Dutch Disease

Dutch Disease is thought to have ongoing negative effects on resource rich open economies. There is little evidence on how economies recover. We document the Australian case in the aftermath of the commodities price boom resulting from high input demand from China. We show that where the boom is contained in an export-oriented, small-employment sector of the economy and driven by external demand rather than price shocks, the economy recovers to its equilibrium relatively quickly. To show this we add a new tool to the SVAR toolbox which enables us to assess the source of deviations in the observed outcomes from an empirical steady-state implied by the model.

Investigating the oil curse in OECD and Non-OECD oil-exporting economies using green measures of income

Empirical studies investigating the natural resource curse theory mostly employ cross-country and panel regression techniques subject to endogeneity bias. Also, most of these studies employ GDP in its aggregate or per-capita terms as the outcome variable in their analyses. However, the use of GDP measures of income for resource curse investigations may not portray the true incomes of resource-intensive economies. Standard national accounts treat natural resource rents as a positive contribution to income without adjusting for the value of depleted natural resource stock. This treatment often leads to a positive bias in the national income computations of resource-rich economies. Unlike previous studies, we test the robustness of the curse in the predominantly used measures of national income, GDP, by investigating the theme in genuine income measures of economic output as well. Also, the paper deviates from most empirical studies in the literature by using the Arellano–Bond difference GMM method in investigating the oil curse in OECD and Non-OECD oil-exporting economies. Additionally, we employ two alternative measures of resource intensity in our explorations; the share of oil rents in GDP and per-capita oil reserves. Our results provide evidence of the curse in Non-OECD countries employing aggregate and per-capita measures of genuine income.

PRIVATIZATION AND NATIONALIZATION CYCLES

This paper studies cycles of nationalization and privatization in resource-rich economies. It starts with a synthesis of available evidence on the drivers and consequences of privatization and nationalization. Then it develops a dynamic model of the choice between private and national regimes for the ownership of natural resources. The choice is driven by a basic equality-efficiency trade-off: national ownership results in more redistribution of income and more equality but undermines incentives for effort. We discuss how the resolution of the trade-off depends on external variables—such as the commodity price—and domestic ones—such as the tax system. The model thus identifies the determinants of the observed cycles of privatization and nationalization and is consistent with key stylized facts.

How Fiscal Policy Affects Non-Oil Economic Performance in Azerbaijan?

The role of fiscal policy in promoting economic growth has been subject to many studies since its suggestion by Keynes who stated expansionary/contractionary impact of public expenditures/taxes. In this context, effectiveness of fiscal policy use to develop non-oil sector in resource rich economies should be studied. This paper investigates short- and long-run effects of budget expenditures and tax-related budget revenues (direct transfers from oil fund excluded) over non-oil GDP while controlling for oil price volatility and oil production in case of Azerbaijan. Autoregressive Distributed Lag Bounds Testing (ARDLBT) Approach to cointegration is employed for data covering 2000Q1-2015Q2. Estimation results theoretically consistent and statistically significant long-run effects of both budget expenditures and tax-related budget revenues. However, in the short-run, the effects are contrary to the theoretical expectations. Findings are useful for Azerbaijan fiscal policy makers especially in the current complicated nature of economic processes in the economy due to oil related challenges.

Update on the Standard Template to Collect Data on Government Revenues from Natural Resources

The paper presents an update on the status of the standard template to collect data on government revenues from natural resources, originally presented to the Executive Board in January 2014. The paper discusses: (i) the field-testing of the standard template in six countries, which confirmed the feasibility of applying it more broadly; (ii) the final version of the template based on outcomes of consultation with the international community and the field-testing visits; and (iii) the adoption of the template by the Extractive Industries Transparency Initiative (EITI) International Secretariat as a mandatory reporting requirement for its member countries. The standard template serves as a companion to the Guide to Analyze Natural Resources in the National Accounts. The standard template was developed to support fiscal policy formulation and analysis in resource-rich economies, which constitute about one third of the Fund’s membership. The standard template is based on the revenue classification of the Government Finance Statistics Manual 2014, thereby facilitating the collection of resource revenue data in methodologically sound, analytically relevant, and cross-country comparable format.

A comparison of fiscal rules for resource-rich economies

This paper produces a normative evaluation of fiscal rules for a resource-rich economy. Ad hoc fiscal rules might imply substantial welfare costs; the goal is to analyze the magnitude of these costs by quantitatively evaluating the relative welfare sub-optimality of these rules. I posit a closed form solution for the infinite horizon consumption problem of the planner of a resource-rich economy with resource price uncertainty and precautionary saving. The model is subsequently calibrated and simulated to provide a welfare-based comparison between the fiscal rules based on the Permanent Income Hypothesis and on the ad hoc Bird-in-Hand policy. The results of the simulation indicate the presence of a positive and substantial welfare loss suffered from switching to the Bird-in-Hand rule. This result is shown to be robust under different parameterizations.

The Role of Demand on Innovation: Evidence from a Resource Rich Economy

As the demand-pull theories of innovation are making their come back, there is also increasing interest in the role of government demand in stimulating innovation. Governments, especially in OECD countries, have announced initiatives and reforms aimed at mobilising the use of procurement to support competitiveness and innovation (OECD, 2013). In the past 10 years, the oil and gas rich countries of the Gulf Cooperation Council have earmarked substantial financial resources to support the development of domestic innovation systems. This paper draws on the Abu Dhabi Innovation Survey to discern the impact of demand on innovation, particularly that of government demand. With a few exceptions (Aschhoff and Sofka 2009; Slavtchev and Wiederhold 2012; Guerzoni and Raiteri 2015), most of the empirical evidence on the effect of government demand on innovation is based on case studies (Edler 2013, Edquist and Zabala-Iturriagagoitia 2012, 2014; Edquist 2015; Georghiou et al. 2014;). This paper therefore provides two unique insights, firstly, insights into an innovation survey from the Middle East and, secondly, insights into the influence of substantial domestic albeit “un-articulated” demand.

Current International Economic Scenario and India

Now the current economic scenario is not in bright side. In 2016 when the world economy was in mess, the commodity market was crashing. Stagnant global trade, subdued investment and heightened policy uncertainty marked another difficult year for the world economy. Global growth in 2016 is estimated at post crisis low of 2.3% and is projected to rise to 2.7% in 2017. The global economy has now entered its sixth year of stagnation and the growth outlook for 2017 shows a continuation of this trend. A projected stabilization in energy and commodity prices may provide a small tail wind for resource rich economies in 2017, but the medium-term trend continues to be dominated by weaker growth in key inputs notably investment and labour supply. Modest positive signals emerge from base scenario showing some strengthening in qualitative growth factors such as more advanced technology, improved labour force skills and greater productivity. But those potentially favourable factors are under pressure from ongoing political, policy and economic uncertainties around the world. Businessmen have to prepare for more disruptions from geopolitical tensions, policy uncertainty, financial market volatility and rapid changes in technology. India is also facing same problems but its robust economy able to counter all these problems. It is one of the bright spot in the world economy. Still it has many problems in current scenario.

Inter-regional transfers and the induced under-taxation of economic rents

ABSTRACTInter-regional transfers and the induced under-taxation of economic rents. Regional Studies. This paper shows that if taxes on economic rent are assigned to anticipatory first-moving regions and inter-regional transfers are mandated centrally, rents are under-taxed relative to optimal levels. This provides a possible explanation for low rent capture observed in Australia and Canada, two resource-rich federal economies that also have fiscal equalization transfers between regions.

A Micro Tale of a Trade-Off: Structural Change versus Balance-of-Payments Equilibrium in an Egyptian foreign investment project in Algeria

Resource-rich economies can find themselves trapped in a dilemma over whether to prioritize processes of structural change or to preserve their balance-of-payments equilibrium. The objective of national development strategies to diversify the productive structure might reflect on the attraction of foreign direct investment projects, with a negative impact on net exports – therefore leading to current account deficits and increased needs of external financing. This article analyses this macroeconomic trade-off, through the particular case of one Egyptian direct investment in Algeria by way of a cable manufacturing company. The case study is conducted following a previously elaborated methodological framework for the study of the development effects of foreign direct investment (FDI).

On the Exposure of the BRIC Countries to Global Economic Shocks

The financial crisis led to a deep recession in many industrial countries. While large emerging countries recovered relatively quickly from the financial crisis, their performance deteriorated in the last years, despite the modest recovery in advanced economies. The higher divergence of business cycles is closely linked to the Chinese transformation. During the crisis, the Chinese fiscal stimulus prevented a decline in GDP growth not only in that country, but also in resource-rich economies. The Chinese shift to consumption-driven growth led to a decline in commodity demand, and the environment became more challenging for many emerging markets. This view is supported by Bayesian VARs specified for the BRIC (Brazil, Russia, India, and China) countries. The results reveal a strong impact of international variables on GDP growth. In contrast to the other countries, China plays a crucial role in determining global trade and oil prices. Hence, the change in the Chinese growth strategy puts additional reform pressure on countries with abundant natural resources.

External Adjustment in a Resource-Rich Economy: The Case of Papua New Guinea

How should resource-rich economies handle the balance of payments adjustment required after commodity price declines? This paper addresses the question theoretically by developing a simple two-period multi-sector model based on Nakatani (2016) to compare different exchange rate policies, and empirically by estimating elasticities of imports and commodity exports with respect to exchange rates using Papua New Guinean data. In the empirical part, using various econometric methods, I find the statistically significant elasticities of commodity exports to real exchange rates. In the theoretical part, by introducing the notion of a shadow exchange rate premium, I show how the rationing of foreign exchange reduces consumer welfare. Using the estimated elasticities and theoretical outcomes, I further discuss policy implications for resource-rich countries with a focus on Papua New Guinea.

External Adjustment in a Resource-Rich Economy: The Case of Papua New Guinea

How should resource-rich economies handle the balance of payments adjustment required after commodity price declines? This paper addresses the question theoretically by developing a simple two-period multi-sector model based on Nakatani (2016) to compare different exchange rate policies, and empirically by estimating elasticities of imports and commodity exports with respect to exchange rates using Papua New Guinean data. In the empirical part, using various econometric methods, I find the statistically significant elasticities of commodity exports to real exchange rates. In the theoretical part, by introducing the notion of a shadow exchange rate premium, I show how the rationing of foreign exchange reduces consumer welfare. Using the estimated elasticities and theoretical outcomes, I further discuss policy implications for resource-rich countries with a focus on Papua New Guinea.

The Non-Monotonic Political Effects of Resource Booms

This study uses variation in natural resource rents and mineral production among Peruvian municipalities to analyze the impact of resource booms on local politicians' behavior and citizens' well-being. Although this topic has recently attracted scholarly interest, existing empirical evidence remains inconclusive regarding whether resource booms are beneficial or detrimental to citizens via their effects on public good provision and living standards. Despite many existing theoretical models allowing for the possibility of non-monotonic responses, empirical literature has largely approached this phenomena using linear models, thus misunderstanding the complex nature of resource booms. By examining recent extraordinary mineral price increases along with particular rules for natural resource rent distribution in Peru, I show that the effects of resource booms on reelection outcomes, political competition, public goods provision, clientelism, and well-being are conditional to the size of the rents in a non-monotonic fashion. These results are robust to endogenous production responses and are consistent with recent theoretical scholarship for resource rich economies.

A multi-row deletion diagnostic for influential observations in small-sample regressions

The inference from ordinary least-squares regressions is often sensitive to the presence of one or more influential observations. A multi-row deletion method is presented as a simple diagnostic for influential observations in small-sample data sets. Multi-row deletion is shown to be complementary to two related diagnostic tests, DFBETAS and robust regression. As an illustration, the technique is applied both to simulated data and to a real data set from an influential study examining the role of institutions for economic growth in resource-rich economies. Multi-row deletion reveals that the key economic insight that institutions matter is sensitive to small variations in sample, indicating additional analysis may be warranted.

Фінансовий розвиток, валютні резерви та політичні режими в сировинних економіках

Фінансовий розвиток, валютні резерви та політичні режими в сировинних економіках

Should Countries Invest Resource Revenues Abroad When Demands for Public Infrastructure Are Pressing at Home? The Dilemma of Sovereign Wealth Funds in Sub-Saharan Africa

Setting aside some resource revenues for future generations is not controversial. So is the need to set aside some of the revenues as fiscal buffers against the risk of uncertain revenue flows. There is merit in both on equity and efficiency grounds. For capital-constrained resource-rich economies, the conundrum is whether to invest the savings in external financial assets, or to invest them in whole or in part in domestic infrastructure development. Conventional advice is for the former. There is growing voice, however, that there is room for both. An emerging strategy is to establish ‘umbrella’ sovereign wealth funds (SWFs) with three components each with a clear savings objective: for future generations, for budget smoothening buffers, and for public infrastructure investment. In sub-Saharan Africa Angola, Ghana and Nigeria are most recent examples. But will this innovation become a source of patronage or will it improve the efficiency of domestic infrastructure investment? What guidelines should countries follow to stay true to the objectives of SWF and at the same time meeting their development objectives?

On the Exposure of the BRIC Countries to Global Economic Shocks

The financial crisis led to a deep recession in many industrial countries. While large emerging countries recovered relatively quickly from the financial crisis, their performance deteriorated in the last years, despite the modest recovery in advanced economies. The higher divergence of business cycles is closely linked to the Chinese transformation. During the crisis, the Chinese fiscal stimulus prevented a decline in GDP growth not only in that country, but also in resource-rich economies. The Chinese shift to consumption-driven growth led to a decline in commodity demand, and the environment became more challenging for many emerging markets. This view is supported by Bayesian VARs specified for the BRIC (Brazil, Russia, India, and China) countries. The results reveal a strong impact of international variables on GDP growth. In contrast to the other countries, China plays a crucial role in determining global trade and oil prices. Hence, the change in the Chinese growth strategy puts additional reform pressure on countries with abundant natural resources.

Framework for valuing the utilization of the environment

Purpose – The purpose of this paper is to apply a methodology (drawn from the literature) to value the environment as a capital. Design/methodology/approach – The main analytic framework considered is a factor utilization function, which traditionally deals with labour and manufactured capital. The development of a three-factor function in terms of labour, manufactured capital and environmental capital enables the display of mistaken notions of economic performance. Findings – The purpose of this illustration is to identify the patterns of environmental capital utilization as an economy grows. Although there are some differences in the patterns of environment utilization between Australia and Canada, the patterns observed are in line with that of the environmental Kuznets curve (EKC). Practical implications – This illustration is made with reference to two commodity-driven economies, namely, Australia and Canada. The findings could be used as a point of reference for resource rich economies. Originality/value – This paper illustrates an approach for valuing the environment as an economy grows. This approach is applied to two selected resource rich economies and the findings demonstrate traits similar to that of the EKC.