Commodity Export Booms in Developing Countries

Cuddington, John T.

doi:10.1093/wbro/4.2.143

Cited by 59 publications

(42 citation statements)

References 16 publications

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“…7 Gavin and Perotti (1997), Tornell and Lane (1999), Calderón and Schmidt-Hebbel (2003), Kaminsky et al (2005), Talvi and Végh (2005), Mendoza and Oviedo (2006), Alesina et al (2008), and Ilzetski and Vegh (2008). 8 Gelb (1986), Cuddington (1989), Medas and Zakharova (2009), Arezki and Brückner (2010), and Arezki and Ismail (2010).…”

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confidence: 99%

Over-optimism in Forecasts by Official Budget Agencies and Its Implications

Frankel

2011

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The paper studies forecasts of real growth rates and budget balances made by official government agencies among 33 countries. In general, the forecasts are found: (i) to have a positive average bias, (ii) to be more biased in booms, and (iii) to be even more biased at the 3-year horizon than at shorter horizons. This over-optimism in official forecasts can help explain excessive budget deficits, especially the failure to run surpluses during periods of high output: if a boom is forecasted to last indefinitely, retrenchment is treated as unnecessary. Many believe that better fiscal policy can be obtained by means of rules such as ceilings for the deficit or, better yet, the structural deficit. But we also find: (iv) countries subject to a budget rule, in the form of euroland's Stability and Growth Pact (SGP), make official forecasts of growth and budget deficits that are even more biased and more correlated with booms than do other countries. This effect may help explain frequent violations of the SGP. The question becomes how to overcome governments' tendency to satisfy fiscal targets by wishful thinking rather than by action. Chile in 2000 created structural budget institutions that may have solved the problem. Independent expert panels, insulated from political pressures, are responsible for estimating the long-run trends that determine whether a given deficit is deemed structural or cyclical. The result is that Chile's official forecasts of growth and the budget have not been overly optimistic, even in booms. Unlike many countries in the North, Chile took advantage of the 2002-7 expansion to run budget surpluses, and so was able to ease in the 2008-9 recession.

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confidence: 99%

Over-optimism in Forecasts by Official Budget Agencies and Its Implications

Frankel

2011

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“…Detailed studies of countries that have experienced commodity export booms tend to reinforce these conclusions about the behaviour of government expenditure [Bevan et al, 1987;Cuddington, 1989]. At the end of a review of a number of such experiences Cuddington [1989:161] writes:…”

Section: Tax Revenue Instability With Particular Reference To Sub-samentioning

confidence: 96%

“…8 It is not clear a priori that a correlation between revenue and expenditure instability is to be expected. Firstly, if most of the variation in tax revenue is correctly recognised by governments to be caused by temporary shocks, expenditure is not likely to follow actual revenue closely but to be based on the permanent component of revenue [Cuddington, 1989]. Secondly, governments will assess the (political and/or economic) costs of replacing lost revenues with alternative sources of funds compared to the costs Downloaded by [University of Liverpool] at 05:54 05 January 2015 associated with expenditure cuts.…”

Section: Consequences Of Revenue Instabilitymentioning

confidence: 99%

Tax revenue instability, with particular reference to sub‐Saharan Africa

Bleaney

Gemmell

Greenaway

1995

Journal of Development Studies

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This article examines the temporal instability of tax revenues across a sample of developed and less developed countries. It is shown that instability is especially high in LDCs and is highest in open economies with low per capita income, high output variance and inflationary problems. Even allowing for these factors, revenue instability appears to be particularly high in sub-Saharan Africa.Revenue instability can be expected, via the government budget constraint, to be associated with expenditure instability and/or instability in the sources of deficit finance. Cross-section evidence for LDCs confirms that countries with high tax revenue instability tend also to have high expenditure instability. Time-series evidence for six African countries however, suggests that revenues and expenditures do not move together in a uniform manner, and the direction of causality is generally ambiguous. There is some evidence however that foreign borrowing is used more to finance expenditure increases than to counteract revenue shortfalls.

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“…The share of exports in manufacturing output regressed to 10 per cent by the early 1980s compared with 40 per cent in the mid-1960s. A coffee boom during 1976-79 conferred extra rent equivalent to 8 per cent of GDP annually (Cuddington 1989), which the Kenyan government squeezed from farmers, leaving them with only one-third of world prices to cover their costs (World Bank 2003: 44). Other crops subject to state predation like maize and sugar also lost viability whereas less regulated crops like tea and horticulture did not.…”

Section: Geopolitical Rent Retards Kenya's Competitive Industrializationmentioning

confidence: 99%

14 Aid and Rent‐driven Growth: Mauritania, Kenya, and Mozambique Compared

Auty¹

2010

Foreign Aid for Development

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This paper conceptualises foreign aid as a geopolitical form of rent in order to help distinguish the conditions under which aid is detrimental to sustained economic recovery from those where it is beneficial. Foreign aid shares with natural resource rent and contrived (i.e., government monopoly) rent the property of being a large revenue stream that is detached from the economic activity that generates it, and elicits political contests for its capture. Rent-driven models suggest such contests have two adverse effects: (i) they deflect government incentives into rent-channelling at the expense of promoting wealth creation; and (ii) the resulting political allocation of the rent distorts the economy and precipitates a growth collapse, which is protracted. In this context, the three principal causes of aid failure identified in the literature (corruption, a poor policy environment and Dutch disease effects) are all symptoms of the destabilizing impact of rent streams on immature political economies. Consequently, the deployment of foreign aid to revive collapsed economies runs the risk of perpetuating rent-seeking and thereby postponing essential economic restructuring. This paper compares the varied impacts of aid on the development trajectories of Mauritania, Kenya and Mozambique. It argues …/.

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Commodity Export Booms in Developing Countries

Cited by 59 publications

References 16 publications

Over-optimism in Forecasts by Official Budget Agencies and Its Implications

Over-optimism in Forecasts by Official Budget Agencies and Its Implications

Tax revenue instability, with particular reference to sub‐Saharan Africa

14 Aid and Rent‐driven Growth: Mauritania, Kenya, and Mozambique Compared

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