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 Cond√©, 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-√†-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?...