natural resources curse or blessing are natural resources a curse or a blessing the empirical evidence suggests that either outcome is possible this paper surveys a variety of hypotheses and supporting evidence for why some countries benefit and others lose from the presence of natural resources these include that a resource bonanza induces appreciation of the real exchange rate deindustrialization and bad growth prospects and that these adverse effects are more severe in volatile countries with bad institutions and lack of rule of law corruption presidential democracies and underdeveloped financial systems another hypothesis is that a resource boom reinforces rent grabbing and civil conflict especially if institutions are bad induces corruption especially in nondemocratic countries and keeps in place bad policies finally resource rich developing economies seem unable to successfully convert their depleting exhaustible resources into other productive assets the survey also offers some welfare based fiscal rules for harnessing resource windfalls in developed and developing economies

guidelines for exploiting natural resource wealth the principles of how best to manage the various components of national wealth are outlined where the permanent income hypothesis the hotelling rule and the hartwick rule play a prominent role as far as managing natural resource wealth is concerned a case is made to use an intergenerational sovereign wealth fund to smooth consumption across generations a liquidity fund for the precautionary buffers to deal with commodity price volatility and an investment fund to park part of the windfall until the country is ready to absorb extra spending on domestic investment capital scarcity implies that a positive part of the windfall should be spent on domestic investment the conclusions highlight the political economy problems that will have to be tackled with these normative proposals for managing wealth the author 2014 published by oxford university press

on the use of econometric models for policy simulation in marketing abstract in this article the author discusses the properties of useful econometric models for marketing phenomena with particular attention on models for policy simulations the author addresses model diagnostics parameter stability exogeneity and the lucas critique he also presents the results of a search through the 1998 2003 issues of the journal of marketing research finally the author offers practical guidelines

the concept of natural capital the natural environment is now commonly viewed as a form of capital asset or natural capital also included are ecosystems that provide important goods and services to the economy managing natural capital has consequences for sustainable development however there are contrasting weak versus strong sustainability views which in turn have implications for green accounting natural resource based sovereign wealth funds have emerged as key financial instruments for compensating resource depreciation with greater economy wide investments recent scientific evidence recommends demarcating safe operating spaces to limit exploitation of critical global biophysical subsystems or processes these challenges suggest that the concept of natural capital is pivotal to sound policy

fiscal windfall curse abstract we study the impact of a one off exogenous fiscal windfall on local public finances in the canton of zurich in switzerland in contrast to much of the literature of resource windfalls the windfall occurred in a stable democracy with strong fiscal institutions it was due to the ipo of glencore on the london stock exchange in 2011 as a result its ceo paid an extraordinary tax bill of approximately chf 360 million about chf 238 million of that extra tax revenue entered the municipal resource equalization scheme and rained down on the municipalities of the canton of zurich this quasi experimental setup and our unusually rich dataset allow us to estimate the causal effect of this one off windfall on all municipal accounting positions we show that it triggered large permanent expenditure increases targeting specific groups mostly public employees at the same time as general tax cuts and user charge hikes the resulting imbalances caused a 7 5 fold increase in gross debt relative to the windfall this massive overreaction hints at a substantial fiscal windfall curse even with strong fiscal institutions 178 words

consequences of lower oil prices and stranded assets for russia s sustainable fiscal stance abstract despite substantial oil and gas revenue russia s fiscal stance is unsustainable under our benchmark assumptions the permanent income rule requires a permanent tightening of the fiscal stance by 4 6 points of gdp delaying it by a decade implies that the fiscal stance needs to be tightened by a further 0 9 point this benchmark optimal policy ensures that depletion of oil and gas wealth is matched by an equal increase in above ground financial wealth its merits are highlighted by comparing it with the tougher alternative of the bird in hand rule and with projecting the current fiscal stance if oil and gas revenue rises by a half due to higher prices or more discoveries the fiscal stance needs to be tightened by only 3 2 points of gdp however if a large chunk of oil and gas has to be kept in the soil to meet international agreements to keep global warming below 2 c the permanent transfer drops to 2 0 of gdp and the fiscal stance needs to be tightened by 5 5 points of gdp

the institutional and psychological foundations of natural resource policies abstractthe pressures of political interests which drive the resource curse are well understood but ordinary citizens are usually cast both as the innocent victims of this process and as the potential solution if only governments could be made more accountable to them this paper draws upon recent developments in social psychology to discuss the formation of mass opinions on two aspects of resource ownership one is the spatial assignment of ownership between local and national claims which has been a significant cause of conflict the other is the assignment of revenues between current consumption and future investment which has usually been excessively biased towards the former i suggest why in the absence of an active government communications policy to offset them known psychological biases may interact with resource discoveries to generate mass opinions which contribute to these problems

tourism welfare and de industrialization in a small open economy this paper investigates the effects of an expansion of tourism on welfare output and factor prices in the host country using a general equilibrium international trade model in the absence of taxes foreign ownership and distortions an increase in foreign visitors will increase welfare only if the price of nontradables increases factor mobility and foreign ownership tend to reduce the gains from tourism while commodity taxes tend to increase them conditions under which an increase in tourism can lead to deindustrialization are also discussed copyright 1991 by the london school of economics and political science

dependence distorted development and fertility trends in noncore nations a structural analysis of cross national data to evaluate the hypothesis that dependence on developed nations distorts demographic development in less developed countries ldcs a researcher used panel regression analysis to study variables from 62 nations multinational corporate penetration an estimate of the shares of both a nations capital and its labor that are controlled by developed country based transnational corporations was used as a measure of the level of dependence the analysis demonstrated that school enrollment was highly correlated with level of development social insurance program history and both family planning effort fpe measures in addition countries that underwent the most economic growth the most concerted fpes etc had the most rapid decline in fertility rates conversely those with high levels of multinational corporate penetration dependency experienced either an increase in fertility or a slow decline for example south koreas 1965 cbr was 36 below the population mean of 45 in 1984 the cbr dropped to 20 even further below the population mean of 39 a dramatic absolute and relative fertility decline south korea also had the highest rate of economic growth and its increase in family planning program effort was dramatic from no measurable effect in 1972 to the nation with the highest fpe score in 1982 in addition the level of multinational penetration was modest in conclusion this research supports the view that intranational economic phenomena such as rate of economic growth and concerted fpes contribute significantly to fertility decline on the other hand multinational corporate penetration distorts development and impedes fertility reduction

absorbing a windfall of foreign exchange dutch disease dynamics abstract the permanent income rule is seldom the optimal response to a windfall of foreign exchange such as that from a resource discovery absorptive capacity constraints require domestic investment and investment in structures requires non traded inputs the supply of which is constrained by the initial capital stock this particularly when combined with intra sectoral capital immobility delays adjustment and creates short run dutch disease symptoms as the real exchange rate sharply appreciates and overshoots its long run value optimal revenue management requires investing in the domestic non traded goods sector and a slow build up of consumption accumulation of foreign assets adjusts to accommodate the time paths of domestic consumption and investment

modeling interdependent consumer preferences abstract a consumer s preference for an offering can be influenced by the preferences of others in many ways ranging from social identification and inclusion to the benefits of network externalities in this article the authors introduce a bayesian spatial autoregressive discrete choice model to study the preference interdependence among individual consumers the autoregressive specification can reflect patterns of heterogeneity in which influence propagates within and across networks these patterns cannot be modeled with standard random effect specifications and can be difficult to capture with covariates in a linear model the authors illustrate their model of interdependent preferences with data on automobile purchases and show that preferences for japanese made cars are related to geographically and demographically defined networks

macroeconomic policy in an oil exporting economy with foreign exchange controls the sudden and sharp increases in oil prices during the past decade and the discovery and extraction of oil in the north sea have recently contributed to a renewal of interest in the macroeconomic problems of oil exporting countries in general and those of industrialized and semi industrialized oilexporting countries such as the uk and mexico in particular the economic implications of the north sea oil revenues for the british economy have been hotly debated by forsyth and kay 1980 1981 worswick 1980 barker 1981 corden 1981 and byatt et al 1982 the effects of oil and gas revenues on the economies of canada mexico the netherlands norway and the uk have also been the subject of analysis and discussion in barker and brailovsky 1981 despite their important contribution these studies fall short of formulating a comprehensive theoretical framework for the study of macroeconomic policy in oil exporting countries in general the resurgence of interest in the macroeconomics of oil exporting economies and the lack of a satisfactory theoretical framework emphasize the need for the explicit introduction of an oil sector into macroeconomic models of the open economy the more recent studies by buiter and purvis 1983 eastwood and venables 1982 corden and neary 1982 and neary and purvis 1982 have gone some way towards meeting this need but they are better suited to the study of macroeconomic policy in developed oil exporting countries such as the united kingdom where highly developed financial markets already exist 1 without exception all these studies assume that the economy under consideration operates with a floating exchange rate and that the private capital is internationally mobile they also invariably ignore the short term and the long term financial repercussions of changes in oil income that operate via the government budget constraint and the asset position of the private sector these assumptions are however inappropriate for most oil exporting countries in the middle east africa and latin america the purpose of this paper is to examine the short run and long run macroeconomic consequences of an increase in oil revenues in an oil exporting country characterized by strict foreign exchange controls on private capital flows we attempt to do this in the context of a keynesian underemployment model of the type analysed for example by turnovsky and kaspura 1974 branson 1976 and argy and salop 1979 but with domestic prices set according to a mark up rule along the lines advocated for example by fetherston and godley 1978 1981 unlike argy and salop but in line with other recent contributions to the macroeconomic theory of open economies the present paper explicitly allows for the existence of the government budget constraint and analyses the macroeconomic effects of changes in oil revenues both in the short run when

policy adjustments to the oil boom and their evaluation the dutch disease in indonesia abstract this paper analyzes the effects of two policy adjustments namely exchange rate devaluation and the accumulation of budget surpluses to the oil export boom in indonesia by using a simple simulation model our results indicate that exchange rate adjustment had a significant impact on expansion of tradable sectors especially the manufacturing sector by reversing the real exchange rate while officially maintaining the balanced budget principle the government exercised delicate operations whereby the budget surpluses were covertly accumulated as government deposits such operations were executed as a necessary demand management policy to ensure that the effect of devaluation was persistent these policy adjustments were consistent from a macroeconomic management point of view and have contributed to avoiding the dutch disease that indonesia otherwise might have suffered because of its oil bonanza

aggregate spending and the terms of trade is there a laursen metzler effect this paper investigates the spending and current account effects of terms of trade shifts in a model where households maximize utility over an infinite planning period in the framework developed here an economy specialized in production must experience a fall in aggregate spending and a current surplus as a result of an unanticipated permanent worsening in its terms of trade the paper s model thus provides a setting in which the current account deficit predicted by laursen and metzier harberger and others fails to materialize

resource revenue management and wealth neutrality in norway abstract an important idea behind the norwegian oil fund mechanism and the fiscal spending rule is to protect the non oil economy from the adverse effects of excessive spending of resource revenues over the government budget a critical assumption in this respect is that public sector saving is not being offset by private sector dis saving which is at stake with the hypothesis of ricardian equivalence based on a framework of co integrating saving rates this model provides an empirical test of the ricardian equivalence hypothesis on norwegian time series data although the model rejects the strong form presence of ricardian equivalence results indicate that the norwegian approach does not fully succeed in separating spending of resource revenues from the accrual of the same revenues

oil exporters dilemma how much to save and how much to invest summary policymakers in oil exporting countries confront the question of how to allocate oil revenues among consumption saving and investment in the face of high income volatility we study this allocation problem in a precautionary saving and investment model under uncertainty consistent with data in the 2000s precautionary saving is sizable and the marginal propensity to consume out of permanent shocks is below one in stark contrast to the predictions of the perfect foresight model the optimal investment rate is high if productivity in the tradable sector is high enough

using multimarket data to predict brand performance in markets for which no or poor data exist abstract the authors show how multimarket data can be used to make predictions about brand performance in markets for which no or poor data exist to obtain these predictions the authors propose a model for market similarity that incorporates the structure of the u s retailing industry and the geographic location of markets the model makes use of the idea that if two markets have the same retailers or are located close to each other then branded goods in these markets should have similar sales performance other factors being held constant in holdout samples the proposed spatial prediction method improves greatly on naive predictors such as global market averages nearest neighbor predictors or local averages in addition the authors show that the spatial model gives more plausible estimates of price elasticities it does so for two reasons first the spatial model helps solve an omitted variables problem by allowing for unobserved factors with a cross market structure an example of such unobse

status in the world system income inequality and economic growth this paper addresses recent challenges to fundamental world system research findings by using methods and measures suggested by critics of these findings reanalysis of income and economic growth data using a categorical indicator of world system status derived from snyder and kick suggests that dependency does increase income inequality and retard per capita economic growth net of initial development this offers renewed support for world system theory by rebutting weede s criticism of rubinson and jackman s criticism of snyder and kick

the dutch disease and intergenerational welfare governments in resource abundant economies face a tradeoff between transferring wealth to present generations and saving for future generations employing an overlapping generations framework with endogenous growth this article analyses the intergenerational welfare effects of 1 a wealth transfer policy where the entire wealth is transferred to the generations alive at present 2 an income transfer policy where the wealth is saved and the permanent income of the wealth is transferred to all present and future generations forever not surprisingly present generations are unambiguously better off with the wealth transfer policy less trivially however the wealth transfer policy can be associated with higher welfare also for future generations the intuition for this result is that while a wealth transfer depresses growth only in the periods subsequent to the transfer income transfers constitute a permanent drag on growth perhaps counter to the naive intuition the policy of saving the wealth and

sectoral adjustment costs and real exchange rate dynamics in a two sector dependent economy abstract this paper develops a two sector model in which intersectoral capital movements involve adjustment costs expressed as capital lost in the transformation process these costs have important consequences for the dynamics of capital accumulation and particularly for real exchange rate dynamics persistent deviations of the real exchange rate from its equilibrium are derived and for plausible values of the adjustment cost parameters are consistent with the observed degree of real exchange rate persistence for low adjustment costs the dynamics are qualitatively similar to those of the standard heckscher ohlin technology for high adjustment costs the model converges to the specific factors model thus our framework includes these two standard models as polar extremes

current account norms in natural resource rich and capital scarce economies abstract the permanent income hypothesis implies that frictionless open economies with exhaustible natural resources should save abroad most of their resource windfalls and therefore feature current account surpluses resource rich developing countries rrdcs on the other hand face substantial development needs and tight external borrowing constraints by relaxing these constraints and providing a key financing source for public investment resource windfalls might then be associated with current account deficits or at least low surpluses in this paper we develop a neoclassical model with private and public investment and several pervasive features in rrdcs including absorptive capacity constraints inefficiencies in investment borrowing constraints and capital scarcity we use the model to study the role of investment and these frictions in shaping the current account dynamics under windfalls since consumption and investment decisions are optimal the model also serves to analyze current account norms benchmarks we apply the model to the economic and monetary community of central africa and discuss how our results can be used to inform external sustainability analyses in rrdcs

if diversification is good why don t countries diversify more the political economy of diversification in resource rich countries abstract for resource rich countries diversification is claimed to represent a strategy for reducing resource curse problems this however depends on whether diversification has a positive effect on the country s institutions while there is a lot of evidence that exports of oil have a negative impact on institutions we know much less about the extent to which diversification leads to better institutions this article applies recent political economy theory to the phenomenon of diversification theoretical arguments suggest that it is the pattern of industrial activity rather than diversification per se which affects institutions like democracy in other words not all forms of diversification lead to better institutions furthermore where diversification has a positive impact on institutions diversification may be difficult to attain when it threatens the power base of the ruling elite a possible implication of these arguments is that policies for diversification should focus on international regulation affecting elite incentives rather than domestic industrial policy

resource windfalls and public debt a political economy perspective abstract can natural resource windfalls increase public debt in democracies adopting a political economy perspective we show that the answer is in the affirmative resource windfalls increase both the government s income and wealth the former mitigates the need to borrow whereas the latter encourages further borrowing as it improves its terms implying an ambiguous pure effect of resource windfalls on debt re election considerations shorten political time horizons and give rise to political myopia we show that higher political myopia induced by more stringent institutional re election restrictions magnifies the wealth effect turning positive the effect of resource windfalls on debt we test the model s predictions using a panel of u s states over the period 1963 2007 our identification strategy rests on constitutionally entrenched differences in gubernatorial term limits that provide plausibly exogenous variation in re election prospects and geographically based cross state differences in natural endowments our baseline estimates indicate that a resource windfall of 1 induces an increase of approximately 20 in the public debt of states with more stringent re election restrictions

the dutch disease a disease after all many third world oil producers are encountering serious problems in building up a diversified export base while west european oil and gas producers netherlands united kingdom are suffering a decline in their traded goods manufacturing sector induced by real wage pressures it is becoming increasingly clear that high but temporary oil revenues may be somewhat ora mixed blessing the quip of the economist notwithstanding the mechanism behind this unbalance is clear enough part of the oil revenues is spent on non traded goods which leads to a real appreciation i e a rise in the relative price of non traded goods in terms of traded goods this in turn draws resources out of the non oil traded sector into the non traded goods producing sector corden and neary 1982 van wijnbergen 1980 one may say that this is an efficient response to the increase in income from oil production the united kingdom mexico egypt simply should move into oil derived industries and non traded goods and forget about their manufacturing sector until oil reserves are exhausted however many developing countries are hesitant to take this advice after all the post world war ii success stories in economic development involve without exception countries that promoted their traded goods sector aggressively moreover it is a well established stylised fact that technological progress is faster in the traded non sheltered sectors of an economy than in the non traded sector balassa 1964 is an early reference considering the hypothesis that technological progress rather than taking place exogenously with the passage of time is a function of accumulated experience the concern of countries like egypt mexico or indonesia is much easier to understand since solow 1957 and denison 1962 it is known that capital accumulation explain only a small part of economic growth if most of economic growth is caused by learning by doing induced technologica

modeling dynamic heterogeneity using gaussian processes marketing research relies on individual level estimates to understand the rich heterogeneity of consumers firms and products while much of the literature focuses on capturing static cross sectio

market roll out and retailer adoption for new brands this paper proposes a descriptive model of the spatial and temporal evolution of retail distribution for new packaged goods the distribution model postulates separate processes for local market entry by manufacturers and adoption by retailers given entry of special interest is whether retail adoption occurs along a competitive network with retailers as nodes and overlapping trade areas of these retailers as links the model is calibrated on data covering the introduction of two very successful new brands in the frozen pizza category for these brands manufacturers sequentially enter markets based on spatial proximity to markets already entered spatial evolution and on whether chains in these markets adopted previously elsewhere market selection a retail chain adopts new brands based on the adoption timing of competing chains within its trade territory competitive contagion and on the fraction of its trade area in which the new brand is available trade area coverage the effects of market selection and of trade area coverage create dependencies between market entry and retail adoption because of these dependencies the attraction of a particular market as a lead market depends on its location in the geographic structure of the u s retail trade

income inequality regime repressiveness and political violence death rate from political violence is postulated to vary cross nationally as a positively accelerated time lagged function of income inequality and as a nonmonotonic inverted u function of regime repressiveness the former hypothesis is consistent with approaches to the explanation of collective political violence that emphasize the general concept of discontent or more specifically relative deprivation the latter hypothesis is consistent with a political process version of the resource mobilization approach in the context of a multivariate model estimated across two decades 1958 67 and 1968 77 support is found for the inequality hypothesis support also is foundfor the regime repressiveness hypothesis in the decade 1968 77 for which the index of regime repressiveness is available the u curve effect of regime repressiveness appears to have stronger impact on variation in rates of deadly political violence than the positively accelerated effect of income inequality

optimal fiscal management of commodity price shocks abstract this paper analyzes how low income countries should optimally respond through fiscal policy to commodity price shocks 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 optimal windfall allocation rule between spending today and asset accumulation is determined so as to minimize a social loss function defined in terms of the volatility 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

using natural resources for development why has it proven so difficult developing economies have found it hard to use natural resource wealth to improve their economic performance utilizing resource endowments is a multistage economic and political problem that requires private investment to discover and extract the resource fiscal regimes to capture revenue judicious spending and investment decisions and policies to manage volatility and mitigate adverse impacts on the rest of the economy experience is mixed with some successes such as botswana and malaysia and more failures this paper reviews the challenges that are faced in successfully managing resource wealth the evidence on country performance and the reasons for disappointing results

a positive theory of fiscal deficits and government debt this paper considers an economy in which policymakers with different preferences alternate in office as a result of elections government debt is used strategically by each policymaker to influence the choices of his successors if different policymakers disagree about the desired composition of government spending between two public goods the economy exhibits a deficits bias that is debt accumulation is higher than it would be with a social planner the equilibrium level of debt is larger the larger is the degree of polarization between alternating governments and the less likely it is that the current government will be re elected

the voracity effect abstract we analyze an economy that lacks a strong legal political institutional infrastructure and is populated by multiple powerful groups powerful groups dynamically interact via a fiscal process that effectively allows open access to the aggregate capital stock in equilibrium this leads to slow economic growth and a voracity effect by which a shock such as a terms of trade windfall perversely generates a more than proportionate increase in fiscal redistribution and reduces growth we also show that a dilution in the concentration of power leads to faster growth and a less procyclical response to shocks jel f43 o10 o23 o40

commodity price volatility with endogenous natural resources abstract natural resource reserves are exogenous in models of small commodity exporters changes in the stock of reserves play no role in the macroeconomy including in business cycle volatility trade dynamics or exchange rate volatility we consider richer supply dynamics and model exploration and depletion we show that an endogenous supply of reserves is important for capturing the stylised facts associated with commodity price shocks including a commodity currency the crowding out of non commodity activity dutch disease and a volatile business cycle we also consider how exploration and depletion affect the ranking of optimal monetary and taxation policies when natural resource reserves are held fixed monetary policy is an efficient tool for stabilising the effects of commodity price shocks however when exploration and depletion are accounted for using interest rates to stabilise the effects of commodity price changes becomes inefficient using taxes on the resource sector specifically an ad valorem royalty remains efficient

industrial policy and exchange rate scepticism the aim of the present paper is to put in historical perspective the development thinking on the relationship between industrial and exchange rate policies the first section focuses on the thought of the so called pioneers of development economics specifically their preference for protectionism and their belated recognition that an exchange rate policy could act as a substitute to it in the second one we analyze the exchange rate skepticism that arises out of the theories that identify a foreign constraint to growth in addition to the one revealed by the pioneers the third section briefly complements the previous discussion with reference to macroeconomic formulations that allow for short run contractionary effects of a devaluation reinforcing the skepticism in question in the fourth section we discuss the revival of development thinking in the 1980s and its discussion about east asian trajectories a literature that placed great emphasis on industrial policy finally in the fifth section we discuss the new historical facts and the new development macroeconomics models that are putting an end to exchange rate skepticism

structural determinants of peripheral urbanization the effects of international dependence this paper examines the extent and mechanisms by which international economic dependence affects urbanization in peripheral countries between 1950 and 1970 using panel regression analyses qnd structural equation models on a sample of37 countries investment dependence is found to have a lagged positive effect on urbanization in 1970 the data suggest that investment dependence stimulates growth in the tertiary and informal sectors while inhibiting growth in the industrial labor sector this restructuring of the urban labor force generates increased levels of overurbanization in peripheral countries finally it is argued that dependency theory provides a more adequate framework for understanding urbanization in peripheral countries than modernization theory

urbanization and underdevelopment a global study of modernization urban bias and economic dependency the causes and effects of 3rd world urbanization have been addressed in theories of modernization urban bias and economic dependency but no single cross national study has tested the arguments advanced by all 3 theories this paper uses panel regression analysis to assess the validity of the 3 perspectives in 61 underdeveloped countries between 1960 and 1980 the modernization theory asserts that industrial employment attracts people to urban areas where they work in modern sector employment that facilitates national economic expansion the urban bias theory posits that the disparity in welfare between country and city increases rural to urban migration and thereby expands both urbanization and service informal employment dependency and world system arguments assert that foreign investment promotes both urbanization and service informal labor with foreign investment in agriculture pushing farmers townward and foreign investment in urban manufacturing pulling them there results suggest that underdeveloped nations are experiencing a gradual transition from an agrarian to a service and informal economy a transformation that impedes economic expansion unfavorable agricultural conditions alone will not push rural citizens to urban areas 2 theories help explain the relationship between relatives urbanization and economic growth if future studies of urbanization and underdevelopment are going to be useful then they must transcend current theoretical and ideological particularism

harnessing windfall revenues optimal policies for resource rich developing economies a windfall of natural resource revenue or foreign aid faces government with choices of how to manage public debt investment and the distribution of funds for consumption particularly if the windfall is both anticipated and temporary we show that the permanent income hypothesis prescription of an ever lasting increase in consumption financed by borrowing ahead of the windfall and then accumulating a sovereign wealth fund swf is not optimal for capital scarce developing economies such countries should accumulate public and private capital to accelerate their development and only if the windfall is large relative to initial foreign debt is it optimal to build a swf the optimal time profile of consumption is biased towards the near future as compared to the permanent income hypothesis outcomes depend on instruments available to government we study cases where the government can make lump sum transfers to consumers where such transfers are impossible so optimal policy involves cutting distortionary taxation in order to raise investment and wages and where ricardian consumers can borrow against future revenues in which case the policy response to possible over consumption is a high level of investment in infrastructure

the long term effects of foreign investment dependence on economic growth 1940 1990 does dependence of a national economy on foreign investment promote economic growth or underdevelopment the recent exchanges between glenn firebaugh and william j dixon and terry boswell suggest the contentious nature of this debate this study analyzes models similar to those tested in previous research but with data from earlier time points to examine the long term effects of foreign capital penetration accumulated stocks of foreign capital gdp in 1938 have a short term five year positive effect on economic growth followed by a 20 year lagged negative effect on economic growth beginning in 1960 and lasting at least 30 years similar effects are found using a second indicator of foreign investment dependence debits on investment income for the 1950 90 period the international migration of capital has facilitated development of the world s natural resources and has been instrumental in transmitting the direct effects of the industrial revolution from area to area thereby it has helped to increase

booming sector and de industrialisation in a small open economy this paper presents a theoretical analysis of the dutch disease the phenomenon whereby a boom in one traded goods sector squeezes porfitability in other traded goods sectors both by directly bi

optimal oil production and the world supply of oil abstract we study the optimal oil extraction strategy and the value of an oil field using a multiple real option approach the numerical method is flexible enough to solve a model with several state variables to discuss the effect of risk aversion and to take into account uncertainty in the size of reserves optimal extraction in the baseline model is found to be volatile if the oil producer is risk averse production is more stable but spare capacity is much higher than what is typically observed we show that decisions are very sensitive to expectations on the equilibrium oil price using a mean reverting model of the oil price where the equilibrium price is also a random variable oil production was cut during the 2008 2009 crisis and we find that the cut in production was larger for opec members for countries facing a lower discount rate and for countries whose governments finances are less dependent on oil revenues however the net present value of a country s oil reserves would be increased significantly by 100 in the most extreme case if production was cut completely when prices fall below the country s threshold price if several producers were to adopt such strategies world oil prices would be higher but more stable

the varieties of resource experience natural resource export structures and the political economy of economic growth many oil mineral and plantation crop based economies experienced a substantial deceleration in growth following the commodity boom and bust of the 1970s and early 1980s this article illustrates how countries dependent on point source natural resources those extracted from a narrow geographic or economic base such as oil and minerals and plantation crops are predisposed to heightened economic and social divisions and weakened institutional capacity this in turn impedes their ability to respond effectively to shocks which previous studies have shown to be essential for sustaining rising levels of prosperity analysis of data on classifications of export structure controlling for a wide array of other potential determinants of governance shows that point source and coffee and cocoa exporting countries do relatively poorly across an array of governance indicators these governance effects are not associated simply with being a natural resource exporter countries with natural resource exports that are diffuse relying primarily on livestock and agricultural produce from small family farms do not show the same strong effects and have had more robust growth recoveries

endogenous growth with a limited fossil fuel extraction capacity campbell 1980 and following authors have discussed a limited resource extraction capacity as an augmentation of the well known hotelling model we integrate a limited extraction capacity and related investments in the endogenous growth model of tsur and zemel 2005 to study its effect on economic development the capacity constraint gives rise to three effects on the one hand higher energy costs and the reallocation of production towards capacity investments decrease production available for consumption research and or capital investments energy costs and reallocation effect on the other hand research investments may increase which boosts available production research effect depending on the capital endowment and the strength of the effects long run consumption may be boosted or depressed in particular the capacity constraint may render everlasting consumption growth non optimal in a resource rich economy furthermore we find that capacity investments may be postponed to later points in time if the capital endowment is high

assessing alternative options for allocating oil revenue in iran abstract the present paper focuses on medium term effects of alternative windfall management strategies for a resource abundant country where the resource revenues are expected to last over a prolonged period in particular the trade off between spending and saving is analyzed within the framework of a recursive dynamic computable general equilibrium model the model is further validated against historical data available for 2001 2010 the total factor productivity is calculated endogenously in the model based on a function that reflects the changes in factor productivity the results suggest that saving oil revenues whether in an oil fund or through physical investment in domestic sectors leads to a higher economic growth however physical investment is superior in the short to medium term based on the resultant gdp while creating an oil fund might be more beneficial in the post oil era

income inequality development and dependence a reconsideration we reconsider the role of foreign investment in income inequality in light of recent critiques that question the results of quantitative cross national research on foreign capital penetration we analyze an unbalanced cross national data set in which countries contribute different numbers of observations with a maximum of 88 countries and 488 observations dated from 1967 to 1994 random effects regression models that control for unmeasured country heterogeneity are used to investigate effects of foreign capital penetration on inequality measured as the gini coefficient against the background of an internal developmental model of inequality we adapt firebaugh s 1992 1996 critique of the literature on the effect of foreign investment on economic growth to the study of income inequality and find that the stock of foreign direct investment has an effect on inequality that is independent of the mechanisms identified by firebaugh we explore tsai s 1995 claim that the effect of foreign capital penetration is spurious and find that foreign stock has a significant positive effect on inequality net of region specific differences an alternative interpretation of the findings of the foreign investment inequality literature is discussed in light of the discovery of an inverted u shaped relationship between income inequality and foreign investment stock per capita we conclude that thinking on the relationship between income inequality and investment dependence should be revised in light of an investment development path relating the inflow and outflow of foreign capital to economic development

urban bias dependence and economic stagnation in noncore nations this paper contributes to the growing body of research that assesses the effects of patterns of urbanization on economic growth in less developed countries ldcs regression analysis of data for 65 80 nations including analyses of influential cases suggests that both urban bias and dependency have independent simultaneous and negative effects on economic growth further analyses reveal a strong positive relationship between dependency and urban bias these findings show that understanding urbanization and development in the third world requires the consideration of both external international and internal intranational factors and a combination of the insights gained from dependency world system human ecology and modernization theories

boon or bane reassessing the productivity of foreign direct investment we assess the effects of foreign and domestic capital on economic growth using the latest data and better models of economic growth than those previously used we explicitly consider the role of human capital in the process of economic development we find no evidence that foreign direct investment harms the economic prospects of developing countries the flow of foreign capital from 1980 to 1991 spurred growth in gross domestic product per capita while the level of foreign stock or foreign penetration had no discernible effect indeed new foreign investment was more productive dollar for dollar than was capital from domestic sources previous suggestions that foreign investment flows are less beneficial than domestic ones were based on a misinterpretation moreover foreign direct investment stimulates investment from domestic sources consequently developing countries have no reason to eschew foreign capital as dependency theorists urge

asset policies during an oil windfall some simple analytics many developing countries are currently experiencing oil windfalls whether due to discoveries or to price effects such windfalls pose a series of policy dilemmas the literature has focused on one of these the choice between using windfall savings for public capital formation and investment in foreign assets there are good theoretical reasons for investing a substantial part of the windfall initially abroad the return to investment would fall below the world interest rate if the windfall were to be used entirely for domestic investment investing abroad offers an escape from diminishing returns foreign assets can be repatriated gradually and used for domestic investment however in practice the efficient balance between domestic and foreign assets is politically difficult to sustain also even if politically feasible this strategy is inefficient due to the failure to expand the private capital stock equipment the policy problem is that the government cannot undertake such investment itself and trying to induce private agents to undertake equipment investment by transferring part of the windfall to them is likely to fail as a result of information problems we argue that domestic debt repayment solves this dilemma it has the added advantage of making foreign asset accumulation difficult to reverse 2005 blackwell publishing ltd

optimal fiscal policy and different degrees of access to international capital markets abstract empirically the cyclical pattern of fiscal policy differs between developed and developing countries with in particular much greater pro cyclicality and volatility of public investment in developing countries in this paper i provide a theoretical explanation for the observed differences by analyzing optimal fiscal policy under different degrees of access to world capital markets if the supply of foreign capital is elastic as in a developed country then it is optimal to adjust to an adverse external shock by borrowing from abroad to finance public expenditure and cutting taxes to smooth private consumption if the supply of foreign capital is inelastic however as in a developing country the optimal adjustment policy is to reduce public investment by much more than public consumption and to raise consumption taxes

flight capital as a portfolio choice the authors examine flight capital in the context of portfolio choice they estimate the stock of flight capital held abroad and compare it with the stock of real nonfinancial capital held within each country for 51 countries they construct estimates as of 1990 of private domestic capital and flight capital which combined add up to domestic wealth there are large regional differences in the proportion of private wealth that is held abroad ranging from 3 percent in south asia to 39 percent in africa they explain differences in portfolio choice in terms of the capital to labor ratio indebtedness exchange rate distortions and risk ratings all proxies for differences in the risk adjusted rate of return on capital they then apply the results to four policy questions in which private portfolio choices are potentially important the effect of the east asian crisis on domestic capital outflows spillovers the effect of hipc debt relief on capital repatriation and why africa has so much of its private wealth outside the continent their conclusions 1 the four most severely affected east asian countries will eventually lose about 250 billion in domestic wealth as a result of the deterioration in risk between march 1997 and september 1998 2 they found some support for a spillover model 3 the effect of the hipc debt relief initiative on capital repatriation will vary massively between hipc eligible countries 4 africa has by far the lowest capital per worker which makes massive capital flight from africa all the more distinctive three variables explain capital flight in africa exchange rate overvaluation adverse investor risk ratings and high indebtedness

how to spend it resource wealth and the distribution of resource rents natural resource revenues differ from other government revenues both in their time profile and in their political and legal status they are volatile and exhaustible and belong to all citizens of the country in which they are located this paper discusses the theory of natural resource revenues and examines expenditure practices in a range of resource rich countries it considers both the distributional impact and the efficiency of expenditure policies focusing on the extent to which they succeed in providing all citizens with their share of the benefits due to natural resources

currency substitution risk premia and the taylor principle abstract this paper studies the equilibrium determinacy properties of a simple interest rate rule in a small open economy subject to currency substitution i e the use of a foreign currency for domestic transactions and risk premia on foreign borrowing it shows that if currencies are substitute in the provision of liquidity services the rule s response to inflation has to be sufficiently above unity for the equilibrium to be locally determinate this reinforced taylor principle requirement appears to be more binding in economies characterized by a larger elasticity of currency substitution more debt elastic country risk premia and intermediate degrees of dollarization in transactions

determinants of store level price elasticity using weekly scanner data representing 18 product categories the authors estimated store specific price elasticities for a chain of 83 supermarkets they related these price sensitivities to a com

practice prize winner a nested logit model of product and transaction type choice for planning automakers pricing and promotions we develop a consumer response model to evaluate and plan pricing and promotions in durable good markets we discuss its implementation in the u s automotive industry which spends about 45 billion each year in price promotions the approach is based on a random effects multinomial nested logit model of product e g a vehicle model such as hyundai tucson and transaction type choice transaction types include combinations of acquisition types e g purchase versus lease and pricing instruments cash rebates reduced apr financing lease payment discounts we estimate the model using hierarchical bayes methods to capture response heterogeneity at the local market level we find key characteristics unique to durable good markets first consumers are heterogeneous in both their brand and transaction type preferences second consumers differ in their overall price sensitivity as well as in their relative sensitivity to alternative pricing instruments e g cash discounts reduced monthly payments third the most effective pricing programs tend to be those in which automakers offer consumers a menu of options to choose from e g a choice among a cash discount reduced interest rate financing or a lease payment discount we illustrate the model through an empirical application to a sample of data drawn from j d power transaction records in the entry suv segment and discuss examples of actual implementations

resource boom wages and unemployment theory and evidence from the norwegian petroleum experience the effects of norwegian petroleum activities on nominal wages and the rate of unemployment are analyzed in this paper the theoretical model is based on standard theory of segmented labor markets increased nominal wages in the petroleum sector will unambiguously increase the wage level and the rate of unemployment increased petroleum employment will under realistic assumptions also raise the wage level the effect on the rate of unemployment in this case is ambiguous the empirical model is embedded in reduced forms of the theoretical model and the estimated parameters are consistent with the theoretical results

dutch disease dynamics reconsidered abstract in this paper we develop the first model to incorporate the dynamic productivity consequences of both the spending effect and the resource movement effect of oil abundance we show that doing so dramatically alters the conclusions drawn from earlier models of learning by doing lbd and the dutch disease in particular the resource movement effect suggests that the growth effects of natural resources are likely to be positive turning previous growth results in the literature relying on the spending effect on their head we motivate the relevance of our approach by the example of a major oil producer norway empirically we find that the effects of an increase in the price of oil may resemble results found in the earlier dutch disease literature while the effects of increased oil activity increases productivity in most industries therefore models that only focus on windfall gains due to increased spending potential from higher oil prices would conclude incorrectly based on our analysis that the resource sector cannot be an engine of growth

the role of spatial demand on outlet location and pricing abstract in this article the authors consider the problem of outlet pricing and location in the context of unobserved spatial demand the analysis constitutes a scenario in which capacity constrained firms set prices conditional on their location demand and costs this enables firms to develop maps of latent demand patterns across the market in which they compete the analysis further suggests locations for additional outlets and the resultant equilibrium effect on profits and prices using bayesian spatial statistics the authors apply their model to seven years of data on apartment location and prices in roanoke va they find that spatial covariation in demand is material in outlet choice the 95 spatial decay in demand extends 3 6 miles in a region that measures slightly more than 9 5 miles they also find that capacity constraints can cost complexes upward of 100 per apartment as they predict price elasticities and costs are biased downward when spatial covariance in demand is ignored costs a

macro policy responses to natural resource windfalls and the crash in commodity prices policy prescriptions for managing natural resource windfalls are based on the permanent income hypothesis none of the windfall is invested at home and saving in an intergenerational swf is dictated by smoothing consumption across different generations furthermore with dutch disease effects the optimal response is to intertemporally smooth the real exchange rate smooth public and private consumption and limit sharp fluctuations in the intersectoral allocation of production factors we show that these prescriptions need to be modified for the following reasons first to cope with volatile commodity prices precautionary buffers should be put in a stabilisation fund second with imperfect access to capital markets the windfall must be used to curb capital scarcity invest domestically and bring consumption forward third with real wage rigidity consumption must also be brought forward to mitigate transient unemployment fourth the real exchange rate has to temporarily appreciate to signal the need to invest in the domestic economy to gradually improve the ability to absorb the extra spending from the windfall fifth with finite lives the timing of handing back the windfall to the private sector matters and consumption and the real exchange rate will be volatile finally with nominal wage rigidity we show that a taylor rule is a better short run response to a crash in commodity prices than a nominal exchange rate peg

resource discoveries and excessive external borrowing this paper incorporates a three sector dutch disease model into the overlapping generations framework of o blanchard 1985 it is shown that if the extraction of natural resources is capital intensive then a resource discovery may shift income away from labor if this happens then the asset holders at the time of the discovery will incur such a large debt that in order to pay the interest on the debt aggregate expenditure in the new steady state would have to be smaller than it was before the resource discovery the country may then experience both real depreciation and proindustrialization copyright 1991 by royal economic society

natural disasters and labor markets abstract while it is clear that natural disasters have serious welfare consequences for affected populations less is known about how local labor markets in low income countries adjust to such large shocks combining data from the indonesia family life survey the desinventar database the u s geological survey and district level employment indicators this paper explores how a large earthquake in indonesia affected labor market outcomes in particular the evolution of wages across sectors i find that the earthquake had a positive effect on wage growth for workers who were employed in the agricultural sector at baseline i propose two mechanisms for this result a higher growth rate of the price of rice and a downward shift in the supply of workers in the agricultural sector i show that evidence mainly supports the latter labor shifted out of the agricultural sector into the construction sector raising the marginal product of labor in agriculture

presidential address debt and money financial constraints and sovereign finance economic analyses of corporate finance money and sovereign debt are largely considered separately i introduce a novel corporate finance framing of sovereign finance based on the analogy between fiat liabilities for sovereigns and equity for corporations the analysis focuses on financial constraints at the country level making explicit the trade offs involved in relying on domestic versus foreign currency debt to finance investments or government expenditures this framing provides new insights into issues ranging from the costs and benefits of inflation optimal foreign exchange reserves and sovereign debt restructuring

growth effects of foreign and domestic investment over tha past few years numerous studies in sociology have concluded that foreign investment harms poor nations these studies have focused on the coefficient for foreign capital stock controlling for flow new investment and defying logic have inferred that a negative coefficient for stock reflects dependency effects that retard economic growth since capital stock is the denominator for investment rate the greater the stock the lower the investment rate for a given level of new investment hence the negative coefficient for capital stock found in dependency studies indicates a beneficial investment effect not a harmful effect this point is demonstrated by reanalysis of the data used in dependency studies in these data foreign investment spurs growth earlier analysts have concluded otherwise only because their conclusions have belied their findings

food security in less developed countries 1970 to 1990 despite a global food surplus almost half of the worlds less developed countries suffer significant problems concerning food most social science and policy discussions of food security make the food availability assumption that increased food supply is the key to reducing hunger critics argue however that increased food supply has little impact on hunger and that the primary culprits are entrenched inequality and militarism a lagged panel analysis of food supply and child hunger rates 1970 90 shows that the food supply has only modest effects on child hunger rates and that food supply is structurally rooted in development processes domestic investment urban bias foreign capital penetration while child hunger is politically based in arms imports internal violence and political democratization population pressure tapped by increased age dependency undermines both the supply of food and the populations access to it and culturally dualism magnifies the effects of population pressure on child hunger the effects of economic growth trickle down to affect food both supply and child hunger and economic growth is also positively correlated with political democratization suggesting there is no short term trade off between growth democratization and social equity authors

aggressive oil extraction and precautionary saving coping with volatility the effects of stochastic oil demand on optimal oil extraction paths and tax spending and government debt policies are analyzed when the oil demand schedule is linear and preferences quadratic without prudence optimal oil extraction is governed by the hotelling rule and optimal budgetary policies by the tax and consumption smoothing principle volatile oil demand brings forward oil extraction and induces a bigger government surplus with prudence the government depletes oil reserves even more aggressively and engages in additional precautionary saving financed by postponing spending and bringing taxes forward especially if it has substantial monopoly power on the oil market gives high priority to the public spending target is very prudent and future oil demand has high variance uncertain economic prospects induce even higher precautionary saving and if non oil revenue shocks and oil revenue shocks are positively correlated even more aggressive oil extraction in contrast prudent governments deliberately underestimate oil reserves which induce less aggressive oil depletion and less government saving but less so if uncertainty about reserves and oil demand are positively correlated

commodity currencies and the real exchange rate abstract this paper shows that a change in the terms of trade of a commodity exporting country could cause the relative price of nontraded goods to rise or fall depending on the strength of income and substitution effects