Sunday, December 30, 2012

Stemming ‘conflict minerals’ trade has failed to rein in Congo militias

FT:  ...minerals trade ... has funded rebel groups for more than a decade. These groups are financed partly by taking over ramshackle mines, running smuggling routes into Rwanda, Uganda and Burundi, then wreaking havoc in eastern Congo, often killing and raping civilians...
Companies keen to ensure their minerals are “clean” will buy only tagged material. But the fact that Rwanda is able to export “conflict-free” is a worrying upshot... Rwanda... is accused by UN experts, diplomats and Congo of masterminding, funding and arming a proxy rebellion in eastern Congo, in part to seek out the very material the legislation is meant to safeguard. The UN says Rwandan exports are rising in line with levels of smuggling from Congo, and that smuggling still finances Congolese rebels...

Saturday, December 29, 2012

ExxonMobil, Equatorial Guinea, oil, and malaria

Journal of Public Health Policy: Equatorial Guinea, the most prosperous country in Africa, still bears a high malaria burden. With massive wealth from oil reserves and nearly half its population living in island ecotypes favorable for malaria control, only poor governance can explain continued parasite burden. The oil company ExxonMobil contributed to state failure by financially backing the country‟s dictator and other officials through illicit payments. Now ExxonMobil, which in part perpetuated the malaria burden in Equatorial Guinea, funds non-governmental organizations, charitable foundations, and universities to advocate for and undertake malaria work. The terms under which public health can ethically engage with such an actor are unclear. We reviewed the business and foundation activities of ExxonMobil and surveyed grantee organizations about their conflict of interest policies. Reforms in ExxonMobil‟s business practice as well as its charitable structure, and reforms in the way public health groups screen and manage conflicts of interest are needed to ensure any relationship ultimately improves the health of citizens.

Friday, December 28, 2012

Inflation Dynamics in a Dutch Disease Economy

U of Leicester mimeo: In this paper the effect of foreign sector macro-variable on infl‡ation dynamics and firrms' ’pricing behaviour has been investigated in the context of a small open economy New Keynesian Phillips Curve. This curve is derived and estimated for a developing oil-exporting economy sick with Dutch Disease. This version of NKPC is an extention of Leith and Malley’s (2007) small open economy NKPC incorporating oil as a factor of production which is produced in the home country but its price is determined by the world market. Using GMM technique, this curve has been estimated for standard closed and open economy speci…fications of the Iranian economy, that according to the empirical evidence suffers from Dutch Disease. Introducing open economy elements produces three differences in the estimation compared to closed version. First, the degree of price stickiness and the fraction of backward-looking …firms decrease. Second, the degree of substitutability is close to unity. Third, the forward-looking behaviour gains ground while the backward-looking behaviour becomes less important. Moreover, the signi…ficant estimates of the marginal cost coefficient confi…rm the importance of the real marginal cost in explaining in‡flation dynamics in the Iranian economy.

Thursday, December 27, 2012

The Case for Sharing Africa’s New Minerals Wealth With All Africans

World Bank blog: When Ghana’s Jubilee oil field hits peak production in 2013, it will produce 120,000 barrels a day. Uganda’s Lake Albert Rift Basin fields could potentially produce even greater quantities. Billions of dollars a year could flow into Mozambique and Tanzania thanks to natural gas findings. And in Sierra Leone, mining iron ore in Tonkolili could boost GDP by a remarkable 25 percent in 2012.... One strikingly effective way to make sure that all people, especially the poorest, share in the new minerals prosperity is through safety nets and social protection programs... You can see Africa’s growing interest in social safety nets in the fact that governments have set up more than 130 cash transfer programs in over 35 countries. Direct cash transfers to poor people often work side-by-side with workfare programs that create jobs for people in public works such as building roads. Where these programs have been well set-up and managed, the results have been excellent...

Wednesday, December 26, 2012

Mountains of gold: A blessing or a curse for Tanzania?

World Bank blog: Gold, gems, uranium, coal, iron, copper and nickel…Tanzania is rich in mineral resources. These 'treasures' have attracted considerable attention within the country and abroad. It is estimated that over 500,000 Tanzanians are employed in this sector, principally in traditional small scale activities...

Monday, December 24, 2012

The Political Economics of the Arab Spring

New OxCarre WP: The Arab Spring has led to very di fferent outcomes across the Arab world. I present a highly stylized model of the Arab Spring to better understand these di fferences. In this model, dictators from the ethnic or religious majority group concede power if their country is oil-poor, but can stay in power by bribing the people if their country is oil-rich. Dictators from the minority group often rely on other members of their group to repress protests and to fight the majority group if necessary. These predictions are consistent with observed outcomes in Egypt, Libya, Saudi Arabia, Syria, Tunisia, and elsewhere.

Sunday, December 23, 2012

Public Investment in Resource-Abundant Developing Countries

IMF WP: Natural resource revenues provide a valuable source to finance public investment in developing countries, which frequently face borrowing constraints and tax revenue mobilization problems. This paper develops a dynamic stochastic small open economy model to analyze the macroeconomic effects of investing natural resource revenues, making explicit the role of pervasive features in these countries including public investment inefficiency, absorptive capacity constraints, Dutch disease, and financing needs to sustain capital. Revenue exhaustibility raises medium-term issues of how to sustain capital built during a windfall, while revenue volatility raises short-term concerns about macroeconomic instability. Using the model, country applications show how combining public investment with a resource fund—a sustainable investing approach—can help address the macroeconomic problems associated with both exhaustibility and volatility. The applications also demonstrate how the model can be used to determine the appropriate magnitude of the investment scaling-up(accounting for the financing needs to sustain capital) and the adequate size of a stabilization fund (buffer).

Saturday, December 22, 2012

Gasoline Prices, Fuel Economy, and the Energy Paradox

NBER WP:  It is often asserted that consumers undervalue future gasoline costs relative to purchase prices when they choose between automobiles, or equivalently that they have high "implied discount rates" for these future energy costs. We show how this can be tested by measuring whether relative prices of vehicles with different fuel economy ratings fully adjust to time series variation in gasoline price forecasts. We then test the model using a detailed dataset based on 86 million transactions at auto dealerships and wholesale auctions between 1999 and 2008. Over our base sample, vehicle prices move as if consumers are indifferent between one dollar in discounted future gas costs and only 76 cents in vehicle purchase price. We document how endogenous market shares and utilization, measurement error, and different gasoline price forecasts can affect the results, and we show how to address these issues empirically. We also provide unique empirical evidence of sticky information: vehicle markets respond to changes in gasoline prices with up to a six month delay.

Friday, December 21, 2012

China's overseas investment in the energy/resources sector

Energy Economics: Since 2005, China has greatly enhanced its presence in the global landscape of outward foreign direct investment (OFDI). The total volume of China's OFDI has exceeded $200 billion in the past five years. The number will further rise as China looks for outlets to spend its $3 trillion in foreign exchange reserves. China's emergence as a global direct investor entails a number of consequences, which are yet to be understood. This study seeks to shed light on how corporate China extends its reaches overseas, what are the policy drivers and who are the key decision makers, from the perspective of the energy/resources sector. The goal is to better understand how to reap the financial benefits of corporate China's marching into the global market place.

Thursday, December 20, 2012

Spend or Send

Finance and Development: Developing countries can spend commodity windfalls on physical investment, but it may be better in the short run to distribute part of them to their citizens...

Wednesday, December 19, 2012

Commodity Price Booms and Busts: A Primer

New David Jacks WP:  This paper considers the evidence on real commodity prices over 160 years for 28 commodities representing 5.03 trillion USD worth of production in 2007. In so doing, it suggests and documents a complete typology of commodity price series, comprising long-run trends, medium-run cycles, and short-run boom and bust episodes. The findings of the paper can be summarized as follows: real commodity prices have been on the rise from at least 1950 if evaluated on the basis of the value of production; there is a consistent pattern of commodity price super-cycles in the historical record as well as the present which entail decades-long positive deviations from these long-run trends; these commodity price super-cycles are punctuated by booms and busts which are historically pervasive and becoming more exacerbated over time. These last elements of boom and bust are also found to be particularly bearing in determining real commodity price volatility as well as potentially bearing in determining trend growth in commodity dependent economies.

Tuesday, December 18, 2012

How Alaska's Oil Dividend Could Work in Iraq and Other Oil-rich Countries

New CGD book: Reliance on natural resource revenues, particularly oil, is often associated with bad governance, corruption, and poverty. Worried about the effect of oil on Alaska, Governor Jay Hammond had a simple yet revolutionary idea: let citizens have a direct stake.
The Governor’s Solution features his firsthand account that describes, with brutal honesty and piercing humor, the birth of the Alaska Permanent Fund dividend, which has been paid to each resident every year since 1982.
Thirty years later, Hammond’s vision is still influencing oil policies throughout the world. This reader, part of the Center for Global Development’s Oil-to-Cash initiative, includes recent scholarly work examining Alaska’s experience and how other oil-rich societies, particularly Iraq, might apply some of the lessons. It is as a powerful reminder that the combination of new ideas and determined individuals can make a tremendous difference—even in issues as seemingly complex and intractable as fighting the oil curse...

Monday, December 17, 2012

Managing and harnessing volatile oil windfalls

Vox column by Bremer and Ploeg: Many countries experience substantial revenue windfalls from natural resources. The consensus is that these should not be consumed but put in a fund to smooth the benefits across generations. This column examines how policy recommendations may differ among oil-rich countries, here Norway, Ghana and Iraq. It suggests that oil exporters may need to accumulate not only an intergenerational fund but also a liquidity fund to cope with oil price volatility and a domestic investment fund to alleviate the burden of capital scarcity.

Sunday, December 16, 2012

The world's commodity supercycle is far from dead

The Telegraph: Great resource booms usually end abruptly, catching almost everybody by surprise...

When Commodity Prices Surge

Finance and Development: The recent surge in food prices means that many countries are soon likely to face a new round of inflation pressure. A severe drought in much of the United States and eastern Europe and problems in other food-producing countries have reduced crop yields. Prospects for continued deterioration in the supply mean prices are likely to stay high in the near term. Oil prices, too, have picked up, driven by geopolitical risks...

Saturday, December 15, 2012

Guinea's battle against corruption

Paul Collier writes in The Guardian: Across Africa democratically elected leaders are fighting against corruption in the natural resource sector. But by various means, corruption fights back. Those under investigation hire highly paid legal guns to sue and silence, and highly paid public relations gurus to twist and smear. Impecunious governments trying to impose the rule of law find it subverted into the rule of lawyers and trial by media.Nowhere is this struggle playing out more graphically than Guinea. The nation's first democratically elected president, the long-exiled democracy campaigner Alpha Condé, and his distinguished finance minister, Kerfalla Yansane, are struggling against an inheritance of systemic plunder. One such inheritance, highlighted both by the Financial Times and Global Witness, is the allegation that the world's most valuable iron ore deposits were handed over for a song, on the deathbed signature of a military dictator. The purchasers have defended the deal, but as the African telecoms billionaire Mo Ibrahim said in Dakar last weekend: "Are the Guineans who did that deal idiots, or criminals, or both?"...

Friday, December 14, 2012

Has the UAE escaped the oil curse?

New WP: The UAE is blessed with vast deposits of oil and gas. Contrary to other oil-rich economies, the UAE seems to have escaped from the so-called “oil curse”. We study how the UAE used resource rents to achieve economic development and provide higher welfare for the local population. We identify, nevertheless, symptoms of the resource curse in three areas: very low growth in labor productivity, government policies that are unable to counteract economic cycles induced by oil-price volatility, and massive over employment and declining productivity in the public sector. Therefore, we conclude that while the UAE has not been immune to the oil curse, but it has managed to make the benefits outweigh the negative outcomes of oil exporting. We finally study the case of Dubai as an example of how to overcome the dependency on oil exports and diversify the economy by using a combination of market deregulation, support for foreign trade, and efficient provision of infrastructure and institutions for private sector participation.

Thursday, December 13, 2012

Peak oil

James Hamilton in the UCSD newsletter: Oil is fundamentally a depletable resource – once a barrel is extracted from the ground and burned, it is gone. Nevertheless, world oil production has continued to increase steadily for the last century and a half. Most economists attribute this to technological progress. Each year our methods for finding oil become more sophisticated, and our extraction methods more efficient. Unquestionably this progress has been quite remarkable, with oil now being produced by wells that begin a mile below the surface of the sea and proceed for several more miles through rock to get to the oil-bearing formations...

Wednesday, December 12, 2012

Can Afghanistan avoid the Natural Resource Curse?

Defense & Security Analysis: Recent discoveries of significant mineral deposits offer Afghanistan the opportunity to attain a level of economic development sufficient to stabilize that country's volatile security situation while providing Afghans with a reasonable standard of living. Much, however, depends on whether Afghanistan can avoid the “Natural Resource Curse,” an inter-related set of economic and social pathologies that often bedevil resource-endowed countries. In this article, the authors describe the Natural Resource Curse, evaluate the obstacles it raises for Afghan economic development, and offer a strategy to minimize the risks Afghanistan faces in its efforts to exploit its mineral wealth for the benefit of the population.

Tuesday, December 11, 2012

Europe’s Shale Boom Lies in Sahara

BloombergEurope’s answer to the US shale boom may lie beneath the Sahara desert.
While environmental regulation and disappointing drilling tests have held back the development of shale gas reserves in Europe, Algeria is using tax breaks to encourage exploration. Pipelines under the Mediterranean to Spain and Italy already link Africa’s largest gas exporter into Europe’s grid...
Algeria holds 231 trillion cubic feet of recoverable shale gas, the International Energy Agency estimated, enough to supply the entire European Union for a decade and valued at about $2.6 trillion at current month-ahead U.K. prices...

Monday, December 10, 2012

Suggested reading from the Economist

Shale gas in Britain, Sharing the oil bonanza in Brazil, and Climate change and economic geography.

The Dutch Disease and the Technological Gap

Journal of Development Economics: I present a theory explaining why less technologically advanced countries could be more vulnerable to the Dutch disease. In a bilateral trade model with monopolistic competition and increasing returns to scale, the extent of the crowding-out in the tradable sector depends positively on an interaction between the amount of revenues from natural resources’ exports and the productivity gap vis-à-vis the trade partners. With learning-by-doing, the mechanism is self-reinforcing leading to a productivity divergence pattern. The predictions of the model are consistent with cross-country empirical evidence.

Sunday, December 9, 2012

Rethinking the Fight Against Corruption

Dany Kaufmann: The future of these resource-rich countries no longer rests mainly on foreign aid but on the extent and effective use of the country's own resources and how they use them. For that to occur, a focused and concrete approach to improve governance and accountability is critical. Reshaping the fight against corruption into a smarter strategy that integrates the challenge of improving governance and institutions in both the public and private sphere is the way forward.

Saturday, December 8, 2012

Volatility spillover between oil and agricultural commodity markets

Energy Economics: This study examines volatility transmission between oil and selected agricultural commodity prices (wheat, corn, soybeans, and sugar). We apply the newly developed causality in variance test and impulse response functions to daily data from 01 January 1986 to 21 March 2011. In order to identify the impact of the food price crisis, the data is divided into two sub-periods: the pre-crisis period (01 January 1986 to 31 December 2005) and the post-crisis period (01 January 2006–21 March 2011). The variance causality test shows that while there is no risk transmission between oil and agricultural commodity markets in the pre-crisis period, oil market volatility spills on the agricultural markets -with the exception of sugar- in the post-crisis period. The impulse response analysis also indicates that a shock to oil price volatility is transmitted to agricultural markets only in the post-crisis period. This paper thereby shows that the dynamics of volatility transmission changes significantly following the food price crisis. After the crisis, risk transmission emerges as another dimension of the dynamic interrelationships between energy and agricultural markets.

Friday, December 7, 2012

How do “Mineral-States” Learn?

World Development: Based on case-study methods, I draw lessons from the political economy of macroeconomic management in Chile and Peru to explain how “mineral-states” learn to think long term and eventually escape the resource curse. I give an institutionalist account of the rise of countercyclical funds, showing how the long-term development of elite networks qualifies the contemporary making of curse-escapes. Policy networks compose one central avenue of institutional development, for both the reproduction of path-dependence and the making of institutional change. The exposition challenges political economy of development frameworks which over-emphasize structural (initial) conditions and assume steady (rent-seeking) behavior of state agents.

Thursday, December 6, 2012

Will US oil consumption continue to decline?

Hamilton on Econbrowser: A lot of attention has been given to the optimistic assessments of future U.S. and Iraqi oil production in the IEA's World Energy Outlook 2012. However, perhaps even more dramatic is the report's prediction of a significant long-term decline in petroleum consumption from the OECD countries. For example, the report predicts about a 1 mb/d drop in U.S. oil consumption by 2020 and a 5 mb/d drop by 2035 relative to current levels. I was curious to examine some of the fundamentals behind petroleum consumption to assess the plausibility of the IEA projections...

The Natural Resource Curse and the Spread of HIV/AIDS

New article in Social Science and Medicine: Experts suggest that effective public action can prevent the spread of HIV/AIDS. Countries dependent on natural resource wealth, such as oil, are likely to suffer from governance failures and thereby suffer lower quality public health. Since the cost of fighting disease redistributes income away from rulers, resource wealth is likely to lead to neglect of public action aimed at stemming a deadly disease. We test this proposition in 137 countries from 1990 until 2008 using oil wealth as a proxy for endogenous policy choices on the prevalence of HIV/AIDS, a proxy outcome for ineffective policy and neglect of public action. We find that the ‘resource curse’ seems to affect the spread of HIV/AIDS, even though oil-rich countries ceteris paribus should have more financial resources for effective public action. The results are robust to a host of controls, alternative indicators, and fixed effects estimation.

Wednesday, December 5, 2012

Death metal: tin mining in Indonesia‏

The Guardian: If you own a mobile, it's probably held together by tin from the Indonesian island of Bangka. Mining is wrecking the environment and every year it claims dozens more lives...

Tuesday, December 4, 2012

Increasing Trends in the Excess Comovement of Commodity Prices

New mimeo from Hitotsubashi University: In this paper, we generalize the model of excess comovement originated by Pindyck and Rotemberg (1990), and extended by Deb, Trivedi, and Varangis (1996), to investigate whether and how excess correlations among seemingly unrelated commodity returns have increased recently. To this end, we develop the STDCC model to capture the long-run trends and the
short-run dynamics of excess comovement. Using the commodity return data from 1983 to 2011, in all pairs of agricultural raw materials, beverages, metals , and oil, we fi nd gradually increasing long-run trends since 2000. We also confi rm that the increasing trend in excess comovement is robust and not an artifact of the recent financial crisis nor changes in the e ffects of common macroeconomic factors. Finally, we show that the dynamics of excess comovements in off -index commodities is quite diff erent, which may be taken as additional evidence for the financialization of commodities.

Monday, December 3, 2012

Would a carbon tax cut emissions drastically?

Washington Post Wonkblog: Lately, the White House and Congress have been talking up tax reform. And that’s given policy wonks an excuse to revisit one of their favorite environmental proposals — the carbon tax. The government would slap a fee on greenhouse-gas emissions to offset tax cuts elsewhere. It would boost the economy and address global warming. What’s not to love?
Well, set aside the fact that there aren’t yet any prominent politicians touting the idea. It’s still worth discussing on its merits. And one of the biggest questions here is whether a carbon tax would actually reduce U.S. greenhouse-gas emissions significantly. Is it a comprehensive solution to climate change? Or just a small first step?...

Friday, November 30, 2012

Ethnic inclusion in resource-rich states in West Africa

New Zurich WP: This working paper argues that power sharing amongst ethnic groups is crucial for the political management of resource wealth in Africa. As ethnic conflicts often result from a struggle over access to the state and its material benefits, power sharing should decrease the conflict risk in resource-rich countries. The paper tests this argument in a quantitative analysis of West Africa, based on a new dataset on natural resource wealth. The results show that ethnic power sharing indeed significantly decreases the risk of ethnic conflict onset. Moreover, it mediates the conflict-fuelling effect of resource production: Only where relevant ethnic groups are excluded does resource wealth lead to conflict. However, the analysis also indicates that for ethnic power sharing to be effective it needs to include all relevant ethnic groups in a country.

Thursday, November 29, 2012

Does the Oil Price Adjust Optimally to Oil Field Discoveries?

New ETH WP by Leinert: The Hotelling rule argues that the price for a non-renewable resource adjusts to the shadow value of the resource, reflecting its remaining availability. This study provides an empirical test of this hypothesis. It investigates whether the price of crude oil does adjust to unexpected news about oil field discoveries. The observed price reaction is compared with a prediction of the price decline as derived from
the Hotelling model. This study finds evidence for an adjustment of the price to news about greater resource availability: the price of crude oil declines on average by 0.88% on discovery days. The degree of adjustment to the new level of scarcity is not found to differ significantly from the social optimum. Thus, there is evidence
for the existence of a shadow cost component - a necessary pre-requisite for the Hotelling rule to hold.

Do Oil Prices Respond to Real Interest Rates?

New paper in Energy Economics: We show that the robustness of an inverse relationship between the real interest rate and real oil price depends crucially on how the real interest rate is calculated, and the time-frame of the sample. Consistent with earlier studies, we find that the oil price falls with an unexpected rise in either U.S. or international ex-ante real interest rates. When the ex-post real interest rate is used, the oil price only falls with rises to short-term rates (three months or less). Additionally,the response of the oil price to long-term ex-ante real interest rates must include the period through the mid-2000s for the inverse relationship to appear. In contrast, the oil price consistently falls with unexpected rises in short-term real interest rates throughout the entire sample. We draw two conclusions from the results. The first is that the oil price is consistently responsive to short-term U.S. and international real interest rates, underlying the importance of storage. Second, oil prices have become more responsive to long-term real interest rates over time.

Wednesday, November 28, 2012

The Political Economy of Government Revenues in Post-Conflict Resource-Rich Africa

New NBER WP: This paper examines the post-war strategies of Liberia and Sierra Leone to generate revenues from their natural resources. We document the challenges faced by the government of the two countries, contrasting measures taken to address these challenges as well as the outcomes. We complement the analysis with an analytical model which explores the implications of exploiting natural resources in the aftermath of a civil conflict before public management institutions are developed, as observed in Liberia and Sierra Leone. The key lesson is that resource-rich countries emerging from conflict face a difficult trade-off between relatively large longer-term gains which accrue when institutional capacity is developed prior to exploiting the resources, and smaller short-term revenues that come with immediate exploitation of the resources. The findings call attention to the potential role of the international community in developing post-conflict countries’ natural resource and revenue institutional capacity, as well as transparent corporate and government institutions for resource management.

Tuesday, November 27, 2012

WB Report Warns of Dramatically Warmer World

Like summer’s satellite image of the melting Greenland ice sheet, a new report suggests time may be running out to temper the rising risks of climate change. "Turn Down the Heat: Why a 4°C Warmer World Must be Avoided," warns we’re on track for a 4°C warmer world marked by extreme heat-waves, declining global food stocks, loss of ecosystems and biodiversity, and life-threatening sea level rise.

  • New World Bank-commissioned report warns the world is on track to a “4°C world” marked by extreme heat-waves and life-threatening sea level rise.
  • Adverse effects of global warming are “tilted against many of the world's poorest regions” and likely to undermine development efforts and goals.
  • Bank eyes increased support for adaptation, mitigation, inclusive green growth and climate-smart development.

Monday, November 26, 2012

The Resource Curse and its Potential Reversal

New Uppsala University WP:  Several recent papers suggest that the negative association between natural resource intensity and economic growth can be reversed if institutional quality is high enough. We try to understand this result in more detail by decomposing the resource measure, using alternative measures of both resources and institutions, and by studying different time periods. While an institutional reversal is present in many specifications, only ores and metals interacted with the ICRG measure of institutional quality consistently have a negative growth effect but a positive interaction that turns the curse around when institutions are good enough.

Saturday, November 24, 2012

Violence and resources in Kenya

The Economist interviews John Githongo:

Baobab (The Economist's Africa blog) : Recently we’ve seen outbreaks of violence around the country, including the massacres of villagers around Tana River in the east and the slaughter of police recruits in Samburu county in the north. So far an estimated 500 people have been killed...

John Githongo: What we are seeing now is localized violence, the result of a struggle for power that comes from the competition for resources due to an increasing amount of international and local elite interest in our newfound oil, natural gas, gold, as well as our fertile land. All those things combined means that the politicians are still using violence as a political tool... What’s happening is that there is a massive land grab underway... Now, there’s oil. There’s gold. There’s gas. There’s pasture. And when you combine that with devolution and international investment—the stakes rise higher and higher. The political intensity increases, and that’s why in these regions the violence has just exploded...

Where Is All the Coal?

Slate: Coal is America’s mighty rock. Because coal burns at a slow rate for a long time, it’s more efficient as an energy source than other fossil fuels. And the United States is naturally well-endowed with coal resources—25 percent of the world’s coal reserves are within our borders. Coal has been the leading electricity source worldwide, and over the past 10 years it has supplied one-half of the increase in global energy demand, growing even faster than renewables. And now it’s one of the most fiercely disputed fuels.

There is a dark side to coal. It produces more carbon dioxide when burned than other fossil fuels do and adds disproportionately to global climate change. Ecological costs are abundant, too, and range from mountain-top removal mining to air pollution to coal ash spills...

Friday, November 23, 2012

The Natural Gas Myth

Slate: There’s a pernicious argument being made against energy efficiency, and it goes like this. Last winter was one of the warmest on record, so people had to spend less to heat their homes and businesses. That, combined with a “drilling binge ” in shale gas and new production, made for record low natural gas in prices in April, at less than $2 per million British thermal units (MMBtu). This phenomenon has boosted the U.S. economy to the tune of more than$ 100 billion annually, by one estimate. With such low prices, the thinking goes, investments in alternative energy and energy efficiency don’t make sense...

Thursday, November 22, 2012

The economics of global climate leadership

The Economist: THE International Energy Agency has released its latest World Energy Outlook. The most sobering piece of information in it is a recurring highlight: the estimated time at which the world is "locked in" to a rise in global temperatures of at least 2 degrees Celsius. By 2017, existing energy infrastructure will be sufficient to generate such a scenario; for the world to halt warming at that 2-degree level, it would need to ensure that all additional energy infrastructure was zero carbon or begin retiring existing infrastructure before the end of its useful economic life. Both strategies are difficult to contemplate, and 2017 is not very far away at all.

But the big story in the 2012 outlook is the change in the demand for and supply of energy. Unsurprisingly, emerging markets, and Asia especially, account for ever more of the world's energy demand. Somewhat surprisingly, new exploration and technology—mostly the technique for obtaining unconventional oil and gas known as hydraulic fracturing, or "fracking"—will make America a net exporter of energy within a few decades. Patterns of energy trade will shift significantly as a result...

Wednesday, November 21, 2012

US set to become biggest oil producer

FT: The US will overtake Saudi Arabia and Russia to become the world’s largest global oil producer by 2017, according to the International Energy Agency, in one of the clearest signs yet of how the shale revolution is redrawing the global energy landscape...

Tuesday, November 20, 2012

Carbon Markets: Past, Present, and Future

New NBER WP: Carbon markets are substantial and they are expanding. There are many lessons from experiences over the past eight years: fewer free allowances, better management of market-sensitive information, and a recognition that trading systems require adjustments that have consequences for market participants and market confidence. Moreover, the emerging international architecture features separate emissions trading systems serving distinct jurisdictions. These programs are complemented by a variety of other types of policies alongside the carbon markets. This sits in sharp contrast to the integrated global trading architecture envisioned 15 years ago by the designers of the Kyoto Protocol and raises a suite of new questions. In this new architecture, jurisdictions with emissions trading have to decide how, whether, and when to link with one another, and policymakers overseeing carbon markets must confront how to measure the comparability of efforts among markets as well as relative to a variety of other policy approaches.

Monday, November 19, 2012

Oil exporters’ dilemma

New VoxEU column by Cherif and Hasanov: Policymakers in many commodity-exporting countries confront the question of how much to consume, save, and invest out of revenues from commodity exports. This column says policy should focus on improving productivity in the tradeable sector and reducing volatility through diversifying this sector. This would lower precautionary saving needs, increase investment, raise consumption, and improve welfare.

The Economist on oil in Brazil, Canada, and the US

The perils of Petrobras: BRAZIL’S discovery of oodles of offshore oil in 2007 felt like a transformative moment. For Petrobras, the state-controlled oil company, it raised the prospect of pumping 5m barrels a day by 2020, up from around 2m—meaning a windfall for the government and juicy returns for minority investors. Under Graça Foster (pictured), Petrobras’s boss since February, the find may yet prove a boon to both. But they and she face a white-knuckle ride first...
The sands of grime: THE oil town of Fort McMurray gets a bad press. GQ magazine portrayed it as a hellhole of testosterone and tattoos, where drunken oilworkers shower strippers with cash and get into fights because there’s nothing else to do. Esquire called it “the little Canadian town that might just destroy the world”...

America’s oil bonanza: THE shale-gas revolution in America has been as sudden and startling as a supertanker performing a handbrake turn. A country that once fretted about its dependence on Middle Eastern fossil fuels is now on the verge of self-sufficiency in natural gas. And the news keeps getting better. This week the International Energy Agency (IEA) predicted that the United States would become the world’s largest oil producer by 2020, outstripping Saudi Arabia and Russia...

Friday, November 16, 2012

The Changing Relationship Between Commodity Prices and Equity Prices in Commodity Exporting Countries

New paper by Rossi: We explore the linkage between equity and commodity markets, focusing in particular on its evolution over time. We document that a country’s equity market value has significant out-of-sample predictive ability for the future global commodity price index for several primary commodity-exporting countries. The out-of-sample predictive ability of the equity market appears around 2000s. The results are robust to using several control variables as well as firm-level equity data. Finally, our results indicate that exchange rates are a better predictor of commodity prices than equity markets, especially at very short horizons.

Thursday, November 15, 2012

From Exxon to BP: Has Some Number Become Better than No Number?

New JEP article: On March 23, 1989, the Exxon Valdez ran aground in Alaska’s Prince William Sound and released over 250,000 barrels of crude oil, resulting in 1300 miles of oiled shoreline, the deaths of 250,000 birds, 2800 otters, over 250 seals, and destruction of nearly uncountable salmon and herring eggs (for details, see This event and its aftermath, graphically illustrated to television viewers around the world, ignited debate about the environmental risks of oil usage, the adequacy of regulatory oversight, and the appropriate compensation for damages suffered. The Exxon spill also ignited a debate within the economics profession concerning the adequacy of methods to value public goods, particularly when the good in question has limited direct use, such as the pristine natural environment  of the spill region...

Wednesday, November 14, 2012

How will oil affect Madagascar's environmental riches?

BBC News: The rising prices of oil on world markets, coupled with new technologies aim to turn the Indian Ocean island - famous for its unique habitat and wildlife - into a significant oil producer...

Tuesday, November 13, 2012

Fueling Growth when Oil Peaks

New CESIFO paper by Andre and Smulders: While fossil energy dependency has declined and energy supply has grown in the postwar world economy, future resource scarcity could cast its shadow on world economic growth soon if energy markets are forward looking. We develop an endogenous growth model that reconciles the current aggregate trends in energy use and productivity growth with the intertemporal dynamics of forward looking resource markets. Combining scarcity-rent driven energy supply (in the spirit of Hotelling) with profit-driven Directed Technical Change (in the spirit of Romer/Acemoglu), we generate transitional dynamics that can be qualitatively calibrated to current trends. The long-run properties of the model are studied to examine whether current trends are sustainable. We highlight the role of extraction costs in mining.

Monday, November 12, 2012

Monetary Rules for Commodity Traders

New IMF mimeo by Catao and Chang: We develop a dynamic model of a small open economy that trades commodities whose world prices are subject to realistic random fluctuations, and study the implications of
monetary policy alternatives. The model is much more flexible than those of previous studies, especially in allowing to compare perfect risk sharing against financial autarky. In each case we show how to derive analytically optimal Ramsey allocations and flexible price allocations, and hence to examine the crucial role of behavioral elasticities, production structure, and capital mobility in determining the welfare properties of different monetary choices. Applying these insights to a calibrated example, we find that the impulse responses associated with PPI targeting track flexible price allocations closely, but can diverge greatly from the Ramsey allocations, especially when risk sharing is perfect and the elasticity of demand for exports of a home aggregate is high. In those cases, policies that stabilize the real exchange rate more than PPI targeting, such as targeting expected inflation, deliver higher welfare. But PPI targeting is the clear winner under portfolio autarky.

Saturday, November 10, 2012

The Role of Technological Change in Green Growth

New NBER paper by Popp: By reducing the costs of environmental protection, technological change is important for promoting green growth. This entails both the creation of new technologies and more widespread deployment of existing green technologies. This paper reviews the literature on environmentally friendly technological change, with a focus on lessons relevant to developing countries. I begin with a discussion of data available for measuring the various steps of technological change. I continue with a discussion of sources of environmental innovation. Given that most innovation is concentrated in a few rich countries, this leads to a discussion of the remaining role for lower-income countries, followed by a discussion of technology transfer. Because of the importance of market failures, I then discuss the role of both technology policy and environmental policy for promoting environmentally friendly technological change. The review concludes with a discussion of what environmental economists can learn from other fields.

Friday, November 9, 2012

Mining, Pollution and Agricultural Productivity in Ghana

New paper by Arag on and Rudz: Most modern mines in the developing world are located in rural areas, where agriculture is the main source of livelihood. This creates the potential of negative spillovers to farmers through competition for key inputs (such as land and labor) and environmental pollution. To explore this issue, we examine the case of gold mining in Ghana. Through the estimation of an agricultural production function using household level data, we find that mining has reduced agricultural productivity by almost 40%. This result is driven by polluting mines, not by input availability. Additionally, we find that the mining activity is associated with an increase in poverty, child malnutrition and respiratory diseases. A simple cost-benefit analysis shows that the actual fiscal contribution of mining would not have been enough to compensate affected populations.

Thursday, November 8, 2012

The Causes and Consequences of the Saudi Crude Discount

New paper by Peck: Between 1991 and 2003, Saudi Aramco sold its crude to U.S. refineries at a substantial discount relative to Asian refineries at a total cost of approximately 8.5 billion USD. Using variation in discount receipts across refineries over time, I find that the discount rents were entirely captured by refiners as profits and were not passed through to consumers in the form of lower retail gasoline prices.
There is also evidence that the discount policy affected refiners’ political action. In particular, I find that discount receipts are associated with an increase in refiners’ overall political donations, and that other types of profit shocks were not associated with changes in political giving. This suggests that the effect of the discount was not simply a consequence of the increase in refining profits. Finally, I show that the discount resulted in a reallocation of contributions toward members of congressional committees that reviewed bills of interest to Saudi Arabia and away from those who received donations from pro-Israel interest groups.

Wednesday, November 7, 2012

International Commodity Prices and Political Unrest in Latin America

New paper by Maldonado: Latin America is a region characterized by a turbulent political history and a marked dependence on commodity exports. Constructing a new panel dataset covering most of the 20th century, I examine how international prices for Latin America’s principal exports influenced political unrest. I document a significant association between prices and subsequent political unrest. The results suggest that political dissidents behave rationally, choosing from a menu of protest activities. Specifically, higher export prices are associated with a lower likelihood of violent protest and a higher probability of peaceful demonstration, consistent with higher opportunity cost discouraging dissidents from undertaking riskier protest activities. This pattern is especially true for the price of commodities which produce diffuse rents which are less easily extracted by the state.

Tuesday, November 6, 2012

Nigeria's oil

The Economist: IN AUGUST Nigeria announced that oil production had reached a record 2.7m barrels a day but few experts believed it. Oil is also being stolen at a record rate and traders’ figures show output at well below the government’s figures. Information about Africa’s biggest oil industry is an opaque myriad of numbers. No one knows which ones are accurate; no one knows how much oil Nigeria actually produces. If there were an authoritative figure, the truly horrifying scope of corruption would be exposed...

Monday, November 5, 2012

Why Oil-Rich States are So Violent

New mimeo by Blair: I develop a theory of whether and where civil wars emerge in resource-rich states, based on bargaining within the state over the spoils and on the state's attempts to safeguard the resources. I argue that these processes are shaped by where the resource is discovered. In contrast to existing scholarship which describes oil wars over territorial control of natural resources, I predict that regional economic and security inequalities lead only to conflict in resource-poor regions. To test the theory, I present a new dataset of the timing and location of oil and natural gas discoveries and a novel causal identification strategy. I find that civil war is more likely in states with oil discoveries, but only if it is found on land where local populations can threaten to interrupt production. In stark contrast to scholarly and practitioner consensus, I find that these civil wars take place not in the oil region itself, but elsewhere in the state.

Saturday, November 3, 2012

Zambia’s Mineral Tax Reforms

New ICTD paper: The recent rise in commodity prices is one feature that has influenced reforms in mineral
industries around the world. While the general determinants are becoming better understood, each country may offer new insights into this problem. This paper focuses on Zambia‟s experience to understand what determined the tax reforms there. In addition, it explores the successes and failures of the mechanisms used to ensure a stable investment environment in Zambia. The paper finds that contract clauses between mining companies and the Zambian government provided some stability, even if no arbitration has so far occurred. In addition, certain tax structures imposed so far have not provided any protection. This paper suggests a better enabling environment, including greater diversification and government administrative capacity, may make these strategies more successful in the future.

Friday, November 2, 2012

Green growth

New World Bank paper by Withagen and Smulders: This paper reviews dynamic general equilibrium models
in order to collect insights on the interaction between economic growth and environmental issues. The authors discuss the Ramsey model and extend it for natural resource inputs and pollution, as well as for endogenous technical change. Green growth becomes within reach if there is good substitution, a clean backstop technology, a small share of natural resources in gross domestic product, and/or green directed technical change.

Thursday, November 1, 2012

Oil and political survival

New JDE article by Andersen and Aslaksen: Political economy theories on the “natural resource curse” predict that natural resource wealth is a determining factor for the length of time political leaderships remain in office. Whether resource wealth leads to longer or shorter durations in political office depends on the political incentives created by the natural resources, which in turn depend on the types of institutions and natural resource. Exploiting a sample of more than 600 political leadership durations in up to 152 countries, we find that both institutions and resource types matter for the effect that natural resource wealth has on political survival: (i) wealth derived from natural resources affects political survival in intermediate and autocratic, but not in democratic, polities; and (ii) while oil and non-lootable diamonds are associated with positive effects on the duration in political office, minerals are associated with negative duration effects.

Wednesday, October 31, 2012

The Real Stimulus: Low-Cost Natural Gas

Daniel Yergin in the WSJ: An unconventional oil and gas revolution is under way in the United States, but its full ramifications are only beginning to be understood. The basic facts are clear enough. Half a decade ago, it was assumed that the U.S. would become a large importer of liquefied natural gas; now the domestic natural gas market is oversupplied, thanks to the ability to produce shale gas through hydraulic fracturing and horizontal drilling technologies. Shale gas alone is now 10% of the overall U.S. energy supply. And similar technologies to recover so-called tight oil trapped in rock formations are largely responsible for boosting ...

Tuesday, October 30, 2012

Will Africa ever benefit from its natural resources?

BBC online debate: Whether Africa will ever benefit from its natural resources is a question that is more relevant now than ever, as new discoveries of coal, oil and gas across East Africa look set to transform global energy markets and - people hope - the economies of those countries.

Monday, October 29, 2012

Green Technologies and the Protracted End to the Age of Oil: A strategic analysis

New OxCarre paper by Niko Jaakkola: This paper considers competition between an oil exporter depleting
and selling an exhaustible resource, and an oil importer able to gradually lower the cost of substitutes. R&D into clean fuels begins before the substitutes are competitive, in order to reduce overall development
costs. The substitute constrains the oil exporter's market power: after an initial Hotelling-type stage, oil pricing becomes constrained by the ever-cheaper substitute technology. Supply is thus non-monotonic, initially falling, then forced up by competition from the substitute. Climate change slows down substitute development: rapid R&D forces the exporter to extract oil faster, aggravating near-term environmental impacts. If oil extraction becomes more expensive as supplies are depleted, the importer switches into clean fuels once these price oil out of the market; technological development will eventually be hastened to leave more of the oil locked underground. Novel numerical methods for solving PDEs are introduced into a differential game context.

Saturday, October 27, 2012

Oil price risk, expropriation and bilateral investment treaties

New Vox column: The sharp increase in the oil price between 2003 and 2008 brought back the practice of expropriating assets of independent oil companies. This column suggests that bilateral investment treaties may mitigate expropriations and allow resource-rich countries to shift a larger proportion of the risk associated with variations in natural resource prices to oil companies.

Friday, October 26, 2012

The Canadian resource economy

CHRISTOPHER MAJKA blogs: ... our country is blessed with energy resources, minerals, forests, arable land, and fisheries. This richness of natural resources should and does not constrain the developmental vision of Canada, for instance, counter to any expectation or intuition, the Canadian based Cirque du Soleil has become one of the world's foremost exemplars of nouveau cirque, almost single-handedly transforming the fast-vanishing circus tradition from a fading and tawdry showcase to a leading vehicle for the imaginative performing arts -- who would have imagined it? Properly employed natural resources can not only be an enormous asset, but can also pave the way for a robust, diverse, and resilient Canadian economy.

Thursday, October 25, 2012

Oil price risks and pump price adjustments

New World Bank WP: Between 1999 and 2008, world oil prices more than quadrupled in real terms. For oil importers, vulnerability to oil price increases, defined as the share of gross domestic product spent on net oil imports, rose considerably. Considering medians, low-income countries had the highest vulnerability in 2008 and the highest increase in vulnerability between 1999 and 2008. When changes in vulnerability were decomposed into several contributing factors, more than two-thirds of 170 countries studied were found to have offset the increase in the value of oil consumption by reducing the oil intensity of gross domestic product. Oil intensity fell in more than half the countries in every income group and in every region of the world, driven by falling energy intensity and, to a lesser extent, the oil share of energy. This study also examines the degree of pass-through to consumers of increases in world prices of gasoline, diesel, kerosene, and liquefied petroleum gas between January 2009 and January 2012, when oil prices in nominal U.S. dollars more than doubled. Retail fuel prices varied by two orders of magnitude in 2012, and oil-exporting countries were far less likely to pass on price increases. Gasoline had the highest pass-through, followed by diesel, liquefied petroleum gas, and kerosene. The median pass-through increased with income for gasoline, diesel, and kerosene, but was highest in low-income countries for liquefied petroleum gas. Despite divergent pricing policies, the pass-through coefficients of different fuels were strongly positively correlated, suggesting that the degrees to which domestic prices tracked world prices were comparable for the four fuels in many countries.

Wednesday, October 24, 2012

Political risk insurance as an instrument to reduce oil and gas investment risk and manage investment returns

J World Energy Law and Business: New oil and gas supply projects are increasingly taking place in non-OECD countries, where the rule of law and the sanctity of contracts are often not as well developed as in OECD countries. The oil and gas industry faces increasing political risk at the same time that oil prices have become more volatile and project costs have escalated, sometimes squeezing margins. The exceptionally high capital intensity of the oil and gas industry makes companies particularly vulnerable to political risk. MIGA, the Multilateral Investment Guarantee Agency of the World Bank, in its World Investment and Political Risk 2011 report, broadly defines political risk as ‘the probability of disruption of the operations of companies by political forces and events, whether they occur in host countries or result from changes in the international environment. In host countries, political risk is largely determined by uncertainty over the actions not only of governments and political institutions, but also of minority groups and separatist movements’. The essence of this definition focuses on the risks arising from the adverse actions—or inactions—of governments. Political risk includes, for example, currency convertibility and transfer restrictions, expropriation, civil unrest, war and terrorism, breach of contract and non-honouring of sovereign financial obligations. Energy investors are understandably concerned that returns on projects in emerging markets could suffer as a result of political changes or instability in the host country. In 2010, a survey of the US Energy Industry conducted by the Aon Corporation, a leading global provider of risk management services, insurance and reinsurance brokerage, ranked political risk among the top five challenges facing the industry. The survey also revealed that most companies are not properly prepared to assess and mitigate political risk. Political risk insurance (PRI) is a relatively recent innovation in positioning companies to reduce oil and gas investment risk. This article explores how PRI can be used to mitigate risks in the oil and gas sector when conducting business across borders, thus helping to manage investment returns. The article discusses a comprehensive case study of the Chad–Cameroon Petroleum Development and Pipeline Project to highlight the various facets of political risk and how these can be mitigated.

Tuesday, October 23, 2012

The most important commodity after oil

The Economist: The trade in iron ore makes it the second-largest commodity market by value after crude oil. Some 2 billion tonnes of the stuff will be dug up in 2012. The price swings of the past few months say plenty about the world economy, as well as the febrile state of global commodity markets. Between June and September spot prices for iron ore fell from around $140 a tonne to close to $85, a three-year low, way off a record high of over $190 a tonne set in February 2011. Prices have recovered a bit since, settling at around $100 a tonne. Had the oil price undergone similar upheavals it would have provoked endless discussion.

Monday, October 22, 2012

Energy-Saving Technical Change

New NBER WP: We estimate an aggregate production function with constant elasticity of substitution between energy and a capital/labor composite using U.S. data. The implied measure of energy-saving technical change appears to respond strongly to the oil-price shocks in the 1970s and has a negative medium-run correlation with capital/labor-saving technical change. Our findings are suggestive of a model of directed technical change, with low short-run substitutability between energy and capital/labor but significant substitutability over longer periods through technical change. We construct such a model, calibrate it based on the historical data, and use it to discuss possibilities for the future.

Friday, October 19, 2012

The Beijing-Baghdad oil axis

FTAfter a decade investing in Africa, China is quietly turning to Iraq to secure future supplies of oil.

Thursday, October 18, 2012

Corruption and competition for resources

New NHH WP: An increasing share of world FDI is carried out by multinationals from developing countries. These investors may have objectives and constraints that differ from their developed country counterparts. In this paper we focus on differences in attitudes to corruption, and how these may shape the competition for the right to extract resources in a developing country context. We show how differences in the investors’ level of technology and differences in the host country government's trade-off between bribes and taxes determine who wins the competition for the resource and the winning price. We find that the entry of a corrupt investor may induce the honest investor to offer bribes instead of taxes. Surprisingly, however, our analysis also demonstrates that under some conditions, the entry of a corrupt investor may in fact induce the honest investor to increase its tax payments.

Wednesday, October 17, 2012

The 9 Habits of Highly Effective Resource Economies

A new CIC report: Canada’s resource peers offer lessons that too often are overlooked in our domestic debate, which is narrow, partisan, frequently uninformed, and almost entirely focused on the Alberta oilsands. “We’ve been handed the golden goose and we squabble over it,” says John Hancock, a counsellor at the World Trade Organization.

Tuesday, October 16, 2012

Petro Rents and Hidden Wealth: Evidence from Bank Deposits in Tax Havens

New mimeo by four Scandinavians:  Who benefits from natural resource rents? Work on the resource curse suggests that such rents fail to reach broader populations in resource rich countries, but where, then, do rents go? We study the transformation of rents from oil and gas extraction into hidden personal wealth using a unique dataset on bank deposits in tax havens. We find that a dollar increase in oil and gas rents in autocracies increases the value of bank deposits in tax havens by around 2 percent while there is no such effect for democracies. Elections and political conflict also increase the hidden wealth of autocracies notably when they are rich in oil and gas. The results suggest that at least 8 percent of petroleum rents are converted into personal political rents in countries with poor political institutions.

Monday, October 15, 2012

Extractive Growth in the United Arab Emirates

Acemoglu and Robinson: In the last blog post we showed how from 1928 until the 1960s despite the ever increasing flow of oil, the Al-Nahyan family, in the shape of Sheik Shakhbut bin Sultan Al-Nahyan, kept the country resolutely underdeveloped... a major program of economic modernization and infrastructure building, the remarkable results of which you can see today in Abu Dhabi.... ...this sort of growth will ultimately become unsustainable — growth in Abu Dhabi and in the Emirates cannot continue unless the political institutions become more inclusive...

Saturday, October 13, 2012

IEA predicts boom for Iraq’s oil industry

Financial Times:  Iraq’s oil output is to more than double by the end of the decade and by the 2030s it will be the world’s second-largest oil exporter after Saudi Arabia, according to an in-depth study by the International Energy Agency... Decades of conflict and international sanctions wreaked havoc on the Iraqi oil industry but the past few years have seen a renaissance. Baghdad has signed contracts with a number of international oil companies such as BP and Royal Dutch Shell to raise production at some of its largest oilfields...

Friday, October 12, 2012

IMF - OxCarre Conference: Call for papers

The Research Department of the International Monetary Fund and OxCarre
International Conference
'Understanding International Commodity Price Fluctuations'
March 13-14, 2013
IMF Headquarters, Washington DC

This conference seeks draft papers or detailed proposals for theoretical and empirical papers analyzing fluctuations in international commodity prices. Topics might involve:
  • Historical developments in international commodity markets
  • Price co-movements between various commodities
  • The global financial crisis and international commodity markets
  • Consequences of commodity prices on unemployment and economic activity in commodity exporting countries
  • Reactions of commodity exporters to the changing structure of global commodity markets
  • Inventories and commodity prices
  • The consequences of rising demand from China and India on commodity market developments
  • The financialisation of commodity markets and the role of information in commodity markets 
The Journal of International Money and Finance (JIMF) will publish a Special Issue on Understanding International Commodity Price Fluctuations with a selection of the papers presented at the conference.The guest editors invite detailed proposals and preferably draft research papers.

Proposals should be submitted electronically to Mr. Hites Ahir at and Ms. Celia Kingham at no later than November 9, 2012. The guest editors will make the final selection of papers to be included in the Conference. Authors will be notified by November 18, 2012 if their paper has been selected.

For more information please click here.

Thursday, October 11, 2012

The Natural-Resource Curse Strikes Again

Andres Velasco writes at Project Syndicate:  Chile today produces one-third of the world’s lithium – used in batteries that power everything from computers to cars – and has great potential to expand that share. But, while everyone agrees that Chile should realize its potential as a global supplier of lithium, the local debate on how to accomplish this has produced more heat than light. President Sebastián Piñera’s government has attempted to auction off the right to expand lithium production to up to 100,000 tons over the next 20 years. But, as is often the case with natural-resource exploitation in developing countries – though not necessarily in Chile – the process has turned into a tragicomedy of errors, impeding the country’s development. There are lessons in this experience for other natural-resource exporters...

ht: Dany Jaimovich

Wednesday, October 10, 2012

Russia faces end of petrodollar surplus

Financial Times: Russia’s petrodollar surplus, which has buffered the economy from external shocks for more than a decade, is poised to vanish as early as 2015 as import revenues overtake those from oil exports, according to its central bank.

Tuesday, October 9, 2012

Political Economy of Natural Resource Richness

Rabah Arezki at Columbia Law School: In seeking to prevent negative fallout from resource development efforts, Arezki listed the following suggestions:
  • Diversification of resources, production, and revenue-streams away from the natural resource sector, so that natural resources essentially become a smaller piece of a nation’s total “pie;” in this sense, non-resource sector revenue may be used as a hedge against macroeconomic volatility;
  • Transfer of / movement away from natural resource wealth/capital to human and physical capital; and
  • Employment of frameworks to guide optimal spending on resource development as well as resource use; such frameworks should seek to anchor public spending and smooth consumption.

Monday, October 8, 2012

Oil Wealth in Central Africa

New IMF volume: Despite its vast oil wealth, central Africa still struggles to sustain strong, inclusive economic growth or to generate sufficient employment opportunities, particularly for its fast-growing youth population. Drawing on new research, Oil Wealth in Central Africa, edited by Bernardin Akitoby and Sharmini Coorey, lays out the macroeconomic and growth challenges facing the region; examines oil wealth management and its implications for poverty reduction; and includes four case studies that exemplify lessons learned.
It includes a chapter on managing oil windfalls by van der Ploeg.

Friday, October 5, 2012

Mining in Indonesia and Mozambique’s riches

The Economist:

On Mozambique:

HEAVY mechanical diggers chomp away at the earth in the sweltering heat of northern Mozambique’s Tete province. Beneath the brittle terrain lie vast deposits of coal, which Vale, a Brazilian mining giant, is busy digging out while tankers spray water to tame clouds of dust. Managers reckon the mine will produce 4.6m or so tonnes of coal this year. In a few years it hopes to raise that to 22m. Rio Tinto, another mining firm operating in Tete, says the region is home to the world’s best undeveloped coking coal...

and on Indonesia:

THE idea was simple. Use a London listing to bring British corporate-governance standards to an Indonesian mining firm set to profit from feeding China’s vast appetite for coal...

Thursday, October 4, 2012

How Mongolia Learned From Chile on Managing a Mineral-Rich Economy

A World Bank blog: The Chile-Mongolia dialogue paved the way for a series of landmark reforms from UlaanBaatar - including law-based structural budget balance rules, ceilings on net public debt and on yearly increases of public expenditures, the creation of a Fiscal Stability Fund to be invested overseas and diminish Dutch Disease risks, a Public Procurement Law, a revamp of the social welfare system that laid the ground for a more efficient and cost-effective social protection, and others. Implementation will certainly have its challenges, as legislative steps are only the beginning. But Chile's example has shown that moving along such a path may lead Mongolia to extract the largest bang from their natural-resource buck.
Link to full Policy Note.

Wednesday, October 3, 2012

Resource Wars and Confiscation Risk

New OxCarre paper by van der Ploeg: Resource wars can be modeled with two-way regime switch uncertainty and contest success functions. Fighting is more intense if the political system is less cohesive, fighting technology is well developed, oil reserves are high and the wage is low. More government stability intensifies resource wars, but leads to less voracious oil depletion. Oil extraction is more aggressive in the presence of contested resources, but less so with more government stability. Our model of resource wars builds on a model of confiscation risk and of perennial political cycles. Not confiscation, but risk of confiscation matters for efficiency. Before confiscation, oil reserves are depleted too rapid. Risk of confiscation is associated with a hold-up problem, which depresses exploration investment and exacerbates the inefficiencies. A subsidy can correct for this. If there is a chance that the economy flips back to no confiscation outcomes are less distorting.

Tuesday, October 2, 2012

Handbook of Land and Water Grabs in Africa

New volume. Topics include: The history of land grabs and the contradictions of development... Chinese engagement in African agriculture... The global food crisis and the Gulf’s quest for Africa’s agricultural potential... The political economy of land and water grabs... Will peak oil cause a rush for land in Africa?... How to govern the global rush for land and water? ...

Monday, October 1, 2012

Government Revenue Stabilization Funds — Do They Make Us Better Off?

New WP from Alberta: Alberta government resource revenues are highly volatile. Adjustment of government  pending to shifts in revenues imposes social and economic costs. To limit the impact of revenue volatility, many jurisdictions have established revenue stabilization funds. There is little empirical evidence on whether these funds improve welfare or whether some fund designs increase welfare by more than others. We provide a quantitative welfare comparison of several different types of rule-based government resource revenue stabilization funds using data for Alberta. Our results show that, relative to the historical path of expenditures, some stabilization funds would have increased welfare. The best performing fund from a welfare perspective requires 50 percent of natural resource revenues to be deposited in the fund each year, and 25 percent of the assets withdrawn. This fund cuts expenditure volatility by almost 30 percent. Stabilization funds that accumulate large asset stocks and, thus, generate low levels of current government services, generally yield low welfare. Funds that depend on an equally-weighted moving average of past revenues have the worst welfare performance of the funds considered. While this study employs data for Alberta, the results are relevant to other resource producing jurisdictions with volatile revenues.

Saturday, September 29, 2012

Monetary Policy in Resource-Rich Developing Economies

New CERGE-EI WP:  The economic literature acknowledges that to avoid the resource curse, resource-rich countries should restrict fi…scal expansion and save a signifi…cant part of resource revenues outside the domestic economy. However, in these countries governments tend to ineffectively spend a considerable part of windfall revenues in the short run. In this research I construct a DSGE model for a small, open economy to show that if …scal indiscipline in the form of immediate responses to foreign resource revenue changes is inevitable, then monetary policy can help improve the allocation problem. The simulation results indicate that targeting the exchange rate or price level through foreign exchange interventions by the central bank can soften the negative effects of Dutch Disease and stabilize the economy in the face of volatile natural resource revenues in the short run. I also …nd that a …fixed exchange rate regime outperforms price level targeting by delivering higher isolation and hence less vulnerability to shocks in natural resource revenues. In contrast, if the central bank chooses to pursue a laissez faire policy, i.e., not to intervene, then the economy becomes vulnerable to shocks in foreign resource revenues and the resource curse becomes more severe.

Friday, September 28, 2012

Direct Distribution of Oil Revenues in Venezuela: A Viable Alternative?

New CGDev WP:  Venezuela is a textbook example of a resource-dependent country—between 1950 and 2008, oil generated over a trillion dollars of income for the state. Nevertheless, Venezuela currently combines an economy that is stagnant, despite high oil prices, with an increasingly authoritarian government. The authors argue that large oil rents that accrue to the state, together with a lack of formal and transparent mechanisms to facilitate citizen oversight, are a large part of the problem. They consider the nature of the fiscal contract between the Venezuelan government and its people. This has been characterized by increasing discretion of the executive; only a small share of the rents is now subject to political oversight within the framework of the budgetary system. The authors consider the case for direct distribution of rents, distinguishing it from a populist approach to transfers as effected through Venezuela’s misiones. They also report on focus group discussions of the direct distribution approach and the political viability of direct transfers.

Thursday, September 27, 2012

Arctic Resources, Exposed by Warming, Set Off Competition

New York Times: At stake are the Arctic’s abundant supplies of oil, gas and minerals that are, thanks to climate change, becoming newly accessible along with increasingly navigable polar shipping shortcuts...

Wednesday, September 26, 2012

Poverty in the midst of abundance

Daniel Kaufmann writes on Trustlaw: In 1990, almost 600 million people lived on less than $5 a day in resource-rich countries. Today, it is estimated that poverty has increased to about 700 million people. Among this population, close to 300 million live in dire poverty, surviving on $2 a day or less. The majority of the poor in resource-rich countries live in Africa, where 80 percent of citizens in extractive-intensive countries live on under $5 a day, and over 50 percent live on under $2 a day.
In many countries the failure to harness natural resource wealth towards national well-being is in large measure linked to a failure of national governance. Of the hundreds of millions of citizens living on under $2 a day in resource-rich nations, 85 percent live in very poorly governed countries – countries which, according to the updated Worldwide Governance Indicators (WGI), rate very poorly in corruption control and other governance dimensions...

Tuesday, September 25, 2012

The End of Global Warming

Noah Smith writes in The Atlantic: Here is the good news. US carbon emissions are decreasing rapidly. We're down over 10% from our emissions peak in 2007. Furthermore, the drop isn't just a function of the Great Recession. Since 2010 our economy has been growing, but emissions have kept on falling. The reason? Natural gas. With the advent of "fracking" technology, the price of gas has plummeted far below that of coal, and as a result, essentially no new coal plants are being built. Although gas does release carbon, it only releases about half as much as coal for the same amount of electricity. This is why -- despite our failure to join the Kyoto Protocol or impose legal restrictions on CO2 -- the United States is now outpacing the rest of the developed world in reducing our contribution to global warming...

Monday, September 24, 2012

Government Spending, Subsidies and Economic Efficiency in the Gulf countries

New OxCarre paper:  Public investment and subsidies are typically inefficient but in the GCC these are crucial engines of growth. Subsidies are also used to redistribute oil windfalls in the region, and the problem of a government that wants to „distribute‟ oil money is a problem fully symmetric to the one analyzed by Ramsey (1927) of optimal taxation. The second-best policy (when lump-sum transfers are not available) is to use subsidies across a wide range of goods (as opposed to the focus on energy chosen by the GCC). In addition, the „inverse‟ Ramsey model implies that commodities for which demand is least elastic to prices should be subsidized at higher rates. This suggests subsidizing basic needs at higher rates, in particular food, healthcare and education. In addition, when subsidies are very large, they create additional distortions because households prefer to queue for subsidies (e.g. public service jobs, subsidized mortgages in Saudi Arabia) rather than participate in private markets. As an example, we draw a model where recruitment of public servants can induce a large disincentive to take private sector positions and compute the conditions under which the disincentive is so strong that overall employment is actually decreased as public servants are being hired.

Saturday, September 22, 2012

Ex-Elf boss extradited to Togo in fraud probe

BBC reports:  Former French oil chief executive Loik Le Floch-Prigent has been extradited from Ivory Coast to Togo on suspicion of involvement in a massive fraud... The 68-year-old was detained on Saturday as part of an investigation into a complaint from a businessman who alleged that he was victim of a $48m (£30m) fraud scheme, according to AFP news agency... Mr Le Floch-Prigent has served a five-year sentence for embezzling more that $350m of public funds during his reign at Elf. He currently works as an oil industry consultant, reports say.

Friday, September 21, 2012

The Optimal Carbon Tax and Economic Growth

New OxCarre paper:  In a calibrated integrated assessment model we investigate the differential impact of additive and multiplicative damages from climate change for both a socially optimal and a business-as-usual scenario in the market economy within the context of a Ramsey model of economic growth. The sources of energy are fossil fuel which is available at a cost which rises as reserves diminish and a carbon-free backstop supplied at a decreasing cost. If damages are not proportional to aggregate production output, and the economy is along a development path, the social cost of carbon and the optimal carbon tax are smaller as damages can more easily be compensated for by higher output. As a result, the economy switches later from fossil fuel to the carbon-free backstop and leaves less fossil fuel in situ. This is in contrast to a partial equilibrium analysis with damages in utility rather than in production which finds that the willingness to forsake current consumption to avoid future global warming is higher (lower) under additive damages in a growing economy if the elasticity of intertemporal substitution is smaller (bigger) than one.

Thursday, September 20, 2012

The determinants of extreme commodity prices

New OxCARRE paper: Fat-tailed commodity price innovations are well-documented in the literature and long recognized as disruptive for consumers and producers, yet little is known about what factors drive such extreme events. Utilizing a wide range of factors from the economics and finance literature and quantile regression techniques, we shed light on this issue. Our models explain more variation in extreme than in median price innovations. Common global nancial and demand factors account for a greater proportion of extreme daily spot price variations than do commodity-speci c factors such as basis and open interest. Financialization of commodity markets, via signifi cant and increasing co-variation of extreme spot price innovations with US equity market and trade-weighted US dollar returns, appears to be a major driver of extreme events in the 2000-2009 period.

Wednesday, September 19, 2012

Optimal Oil Production and the World Supply of Oil

New OxCARRE Paper: 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, for countries facing a lower discount rate, as predicted by the model, and for countries whose governments' finances are more dependent on oil revenues. However, the net present value of a country's oil reserves would be increased significantly (by 100 percent, 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.

Tuesday, September 18, 2012

What Central Bankers Need to Know about Forecasting Oil Prices

New CEPR DP: Recent research has shown that recursive real-time VAR forecasts of the real price of oil tend to be more accurate than forecasts based on oil futures prices of the type commonly employed by central banks worldwide. Such monthly forecasts, however, differ in several important dimensions from the forecasts central banks require when making policy decisions. First, central banks are interested in forecasts of the quarterly real price of oil rather than forecasts of the monthly real price of oil. Second, many central banks are interested in forecasting the real price of Brent crude oil rather than any of the U.S. benchmarks. Third, central banks outside the United States are interested in forecasting the real price of oil measured in domestic consumption units rather than U.S. consumption units. Addressing each of these three concerns involves modeling choices that affect the relative accuracy of alternative forecasting methods. In addition, we investigate the costs and benefits of allowing for time variation in VAR model parameters and of constructing forecast combinations. We conclude that quarterly forecasts of the real price of oil from suitably designed VAR models estimated on monthly data generate the most accurate forecasts among a wide range of methods including forecasts based on oil futures prices, nochange forecasts and forecasts based on models estimated on quarterly data.

Monday, September 17, 2012

Shale Gas Development and Property Values

New NBER WP: While shale gas development can result in rapid local economic development, negative externalities associated with the process may adversely affect the prices of nearby homes. We utilize a triple-difference estimator and exploit the public water service area boundary in Washington County, Pennsylvania to identify the housing capitalization of groundwater risk, differentiating it from other externalities, lease payments to homeowners, and local economic development. We find that proximity to wells increases housing values, though risks to groundwater fully offset those gains. By itself, groundwater risk reduces property values by up to 24 percent.

Thursday, September 13, 2012

Regulating the Resource Curse

Foreign Policy: It's not often that a change in accounting rules could reduce the probability of war. But that's exactly what happened at the U.S. Securities and Exchange Commission (SEC) last week.
On Wednesday, the SEC finally enacted long-overdue regulationsrequiring any oil company that is publicly listed on a U.S. stock exchange to report the tax, royalty, and other payments it shells out to foreign governments where it operates. Previously, companies were able to conceal this information, enabling a culture of corrupt payoffs that kept the petrodollars flowing into authoritarian leaders' coffers -- even where it directly contravened U.S. interests.

Wednesday, September 12, 2012

Natural Resource Abundance, Growth, and Diversification

MENA is one of the richest regions in the world in terms of natural resources: it holds more than 60 percent of the world’s proven oil reserves, mostly located in the Gulf region, and nearly half of gas reserves. Oil represents 80-85 percent of merchandise exports in the region, making it highly depending on fluctuations in international prices. A long strand of economic literature has suggested that such dependence may hurt a country’s growth prospects and the scope for job creation by reducing economic diversification...

A forthcoming World Bank volume focused on the Middle East and North Africa.

Monday, September 10, 2012

Poverty, Growth and the Demand for Energy

New paper presented at the IIES birthday party:
Most of the future growth in energy use is forecast to come from the developing world. Understanding the likely pace and specific location of this growth is essential to inform decisions about energy infrastructure investments and to improve greenhouse gas emissions forecasts. We argue that countries with pro‐poor economic growth will experience much larger increases in energy demand than countries where growth is more regressive. When poor households’ incomes go up, their energy demand increases along the extensive margin as they buy energy‐using assets for the first time. We also argue that the speed at which households come out of poverty affects their asset purchase decisions...

Friday, September 7, 2012

Natural Resource Transparency

Daniel Kaufmann at Brookings: In fact, our own data and research suggests that in the long run there is up to a 300 percent development to citizens dividend from increased transparency, accountability and improved governance. In particular, improved governance can contribute to a threefold rise in incomes and two-thirds decline in infant mortality.
Read it all here.

Monday, September 3, 2012

Africa, oil and the West

The Economist: BARELY a month goes by without a new oil discovery in Africa. Only five of the continent’s 55 countries are neither producing nor exploring for oil. Most places are also extracting lots of lucrative minerals. A resource bonanza is in train across the continent, generating big government revenues and real benefits for Africans. Road networks are expanding, public services are improving. But most of this happens behind a veil of secrecy. Money sloshes out of public scrutiny at the insistence of officials and politicians who prefer it that way...
Read it all here.

Saturday, September 1, 2012

Labor and petroleum in Ecuador

A new article in Focaal: 
This article analyzes the struggles of the petroleum labor movement against the neo-liberalization of the petroleum industry in Ecuador. Though originally focused on defending collective bargaining rights, since the 1990s the movement has put forward a populist, nationalist critique of the state's governance of petroleum. The article traces the roots of the movement and focuses on two contested terrains of petroleum politics, refineries and oilfields, to examine labor's role in resource governance. The article argues that by strategically joining concerns over class and nation, over a number of administrations from the 1970s to the 2000s (from populist, military juntas, to neoliberal), the petroleum labor movement became a defining actor in petroleum governance.

Thursday, August 30, 2012

The Violence of Petrodollar Regimes

A new book by Luis Martinez:
The creation of oil "rents" in the 1970s put Algeria, Iraq, and Libya on the fast track to modernization. Massive revenues turned Algeria into the "Mediterranean dragon," Libya into an "emirate," and Iraq into the preeminent "rising military power" of the Arab world. From a political perspective, the progressive socialism of these countries would seem to have engendered profound, promising change: increased rights for women, positive urbanization, and improved education. Yet oil wealth's realities are beyond disillusioning. The international community now wonders whether reform can ever penetrate such nations and if the west will ever enjoy a secure gas supply. Offering the first global evaluation of these issues, Luis Martinez considers the nature of oil-sponsored violence in Algeria, Iraq, and Libya and its ability both to weaken and bolster their regimes.

Wednesday, August 29, 2012

Recent developments in oil markets

James Hamilton writes on Econbrowser

What's behind the rise in the price of Brent? Some financial reports have stressed rising tensions with Iran. However, one objective, if imperfect, quantitative measure of that comes from the market price of Intrade's contract for an imminent attack on Iran. This has moved relatively little since April.

Another reason may be that total world oil production (including natural gas liquids and biofuels) has been stagnant since January, though at a level 3-1/2 million barrels/day higher than during the Libyan cutbacks in 2011, and 2 mb/d above the pre-Libyan peak in January 2011.

I believe that the most important factor driving oil prices recently has been changing assessments of how strong the world economy will perform over the next 6 months. The decline in oil prices in April-June and the subsequent rebound is mirrored in stock indexes like the S&P500. A stronger economy should mean both higher corporate profits and higher demand for oil. Markets are apparently betting that favorable economic trends in places like the U.S. and China are enough to outweigh the discouraging numbers coming out of Europe.

Tuesday, August 28, 2012

The dynamic effects of resource dependence on institutional quality

Recent World Bank working paper
Are natural resources cursed? An investigation of the dynamic effects of resource dependence on institutional quality

This paper examines whether natural resource dependence has a negative influence on various indicators of institutional quality when controlling for the potential effects of other geographic, economic and cultural initial conditions. Analysis of a panel of countries from 1996 to 2010 indicates that a high degree of resource dependence, measured as the share of mineral fuel exports in a country's total exports, is associated with worse government effectiveness, as well as with reduced levels of competition across the economy. Furthermore, estimation of long-run elasticities suggests that government effectiveness and the intensity of domestic competition decrease over time as the dependence on natural resources increases. An illustration of the Russian case shows that the negative effects accumulate in the long run, leading to a worse deterioration of government effectiveness in Russia than in Canada, a country with a comparable resource endowment but far better overall institutional quality. This result is corroborated by a significant negative correlation found between regional resource dependence and an indicator of regulatory capture in Russian regions, which indicates that the regulatory environment is more likely to be subverted in regions that are more dependent on extractive industries. Overall, the findings would be consistent with a situation in which a generally weak institutional environment would allow resource interests to wield the bidding power accruing from export revenues to subvert the content of laws and regulations, as well as their enforcement. The fact that this is associated with negative externalities for the rest of the economy, notably by undermining a level playing field across non-resource sectors, sheds light on a potential channel for the resource curse.