Current account norms in natural resource rich and capital scarce economies

Araujo, Juliana Dutra; Li, Bin Grace; Furceri, Davide; Zanna, Luis-Felipe

doi:10.1016/j.jdeveco.2015.10.005

Cited by 39 publications

(28 citation statements)

References 21 publications

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“…A number of analytical contributions, including Takizawa et al (2004), Matsen and Torvik (2005), Venables (2010), van der Ploeg (2011van der Ploeg ( , 2012, van der Ploeg andVenables (2011, 2013), Dagher et al (2012), Araujo et al (2013), Berg et al (2013), Richmond et al (2013), and van den Bremer and van der Ploeg (2013), have attempted to address these issues. Several of these contributions bring together elements of the literature on the optimal management of resource windfalls and the literature on the Dutch disease, which considers more broadly the macroeconomic consequences of large inflows of capital (in the form of aid, remittances, or private capital flows, rather than government-related flows only).…”

Section: Introductionmentioning

confidence: 99%

Optimal fiscal management of commodity price shocks

Agénor

2016

Journal of Development Economics

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A dynamic stochastic general equilibrium model is used to study the optimal fiscal response to commodity price shocks in a small open low-income country. The model accounts for imperfect access to world capital markets and a variety of externalities associated with public infrastructure, including utility benefits, a direct complementarity effect with private investment, and reduced distribution costs. However, public capital is also subject to congestion and absorption constraints, with the latter affecting the efficiency of infrastructure investment. The model is parameterized and used to examine the transmission process of a temporary resource price shock under a benchmark case (cash transfers) and alternative fiscal rules, involving either higher public spending or accumulation in a sovereign fund. The optimal allocation rule between spending today and asset accumulation is determined so as to minimize a social loss function defined in terms of the volatility, relative to the benchmark case, of private consumption and either the nonresource primary fiscal balance or a more general index of macroeconomic stability, which accounts for the volatility of the real exchange rate. Sensitivity analysis is conducted with respect to various structural parameters and model specification.

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Section: Introductionmentioning

confidence: 99%

Optimal fiscal management of commodity price shocks

Agénor

2016

Journal of Development Economics

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“…Finally, Araujo et al . () derive an optimal current account for a resource‐rich economy in a one‐sector model, which cannot examine Dutch disease effects from spending resource revenues. Instead of making a theoretical contribution, our goal is to provide a policy planning tool to guide investment decisions in resource‐rich developing countries.…”

Section: Introductionmentioning

confidence: 99%

“…Several papers also find theoretical support for the view that public investment can dominate external saving as an optimal strategy to manage resource revenue in credit-constrained, capitalscarce economies (e.g. Takizawa et al, 2004;van der Ploeg, 2010a;Venables, 2010;van der Ploeg and Venables, 2011;Araujo et al, 2013). Because public investment can potentially earn high returns in capital-scarce economies and lead to higher medium-term growth, it implies that adopting a fiscal framework predicated on postponing priority spending to opt for savings in a sovereign wealth fund can forego growth benefits from more productive capital.…”

Section: Introductionmentioning

confidence: 99%

“…In addition, Van den Bremer and van der Ploeg (2013) study optimal savings in different types of resource funds with a simplified fiscal specification and foreign-supplied private capital. Finally, Araujo et al (2013) derive an optimal current account for a resourcerich economy in a one-sector model, which cannot examine Dutch disease effects from spending resource revenues. Instead of making a theoretical contribution, our goal is to provide a policy planning tool to guide investment decisions in resource-rich developing countries.…”

Section: Introductionmentioning

confidence: 99%

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Investing Volatile Resource Revenues in Capital‐Scarce Economies

Richmond

Yackovlev

Yang

2015

Pacific Economic Review

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Natural resource revenues are an important financing source for public investment in many developing economies. Investing volatile resource revenues, however, may subject an economy to macroeconomic instability. This paper studies fiscal approaches to investing resource revenues, using Angola as an example. With spend-as-you-go, resource revenues are spent as received, resulting in little external saving; public investment can be interrupted, driving up the capital depreciation rate and undermining stability. Gradual scaling-up, instead, allows countries to build up external saving to shield investment from revenue volatility. The framework adopted here can be used as a planning tool to define a medium-term fiscal strategy.

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“…In light of this, a number of studies offer some evidence in this regard. For instance, in order to explain the response of both monetary and fiscal policy to natural resource price shocks, Berg et al (2013) built a three-sector dynamic stochastic general equilibrium (DSGE) model with a financial side, while Araujo et al (2016) developed a two-sector model with private and public investment, and also several frictions, such as absorptive capacity and borrowing constraints. They argue that current account dynamics and fiscal outcomes are affected by commodity price shocks.…”

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confidence: 99%