Thursday, February 28, 2013

Avoiding the Curse of the Oil-Rich Nations

NY Times: Oil-dependent countries, writes the Stanford professor Terry Karl, “eventually become among the most economically troubled, the most authoritarian, and the most conflict-ridden in the world.” This phenomenon is called the resource curse... Do these countries have a way out of the resource curse? ... Todd Moss, a senior fellow and vice president for programs at the Washington-based Center for Global Development, believes they might. He points to an unlikely source of inspiration: Alaska. The state of Alaska is bound by law to put at least a quarter of its revenues from oil into the Alaska Permanent Fund, which was established in 1976. The money is invested and each year, every resident of Alaska gets a share of the dividends; for consistency, the amount is calculated using an average of the fund’s earnings over the past five years. The dividend check is considered taxable income. Last year, the check was for $878. In 2008, the high point, every Alaskan got $2,069...

Wednesday, February 27, 2013

Is North Dakota's Miraculous Boom Already Over?

The Atlantic: This chart tells two stories about America's little petro state. First story: At the beginning of 2012 (much like in 2011 and 2010), North Dakota's stratospheric job creation numbers made even the next frothiest states look like they're were suffering a post-Soviet-breakup depression. Second story: Something happened in the second half of 2012. North Dakota's economy fell back to earth...

This is how an energy boom should go, you could argue. First come the core mining jobs and manufacturing jobs. Then you build the houses and roads to accommodate the miners and factory workers. Then you open restaurants to feed their families. And you build hotels to room their visitors and petro-tourists. That's not a bust story. It's a modern growth story.

Okay, fine. Perhaps that's all the North Dakota slowdown is. Chapter Two in North Dakota's modern gold rush. The state's job creation isn't weak, after all, it's just, well, average. But that's just the problem. When you're girded for a historic gold rush, average growth isn't average news. It's bad news.

Tuesday, February 26, 2013

Contagious Energy Prices

The World Economy: We develop an empirical model of the determinants of end-use energy prices in 28 Organisation for Economic Co-operation and Development countries. For this, we construct a unique panel data-set and formulate a spatial panel econometric model with fixed country effects for the period of 1980–2009. A special feature of the proposed empirical model is that cross-country interdependence in energy prices surfaces through two channels, a metric of similarity towards energy policy and a metric of trade in energy goods. We estimate the parameters of that model and conduct several comparative static experiments. We find that higher income per capita and lower efficiency in energy distribution tend to raise energy prices whereas higher net imports of energy and more abundant energy resource endowments reduce them. We also find that bilateral trade in energy goods is an important channel of transmission of shocks in energy prices across countries. The estimation results suggest that countries that use the same types of resources to generate energy are likely to transmit energy price shocks to each other through competition effects.

Monday, February 25, 2013

Uranium and Nuclear Power: The role of exploration information in framing public policy

OxCarre WP by Mason: As addressing climate change becomes a high priority it seems likely that there will be a surge in interest in deploying nuclear power. Other fuel bases are too dirty (coal), too expensive (oil, natural gas) or too speculative (solar, wind) to completely supply the energy needs of the global economy. To the extent that the global society does in fact choose to expand nuclear power there will be a need for additional production. That increase in demand for nuclear power will inevitably lead to an increase in demand for uranium. While some of the increased demand for uranium will be satisfied by expanding production from existing deposits, there will undoubtedly be pressure to find and develop new deposits, perhaps quite rapidly. Looking forward, it is important that policies be put in place that encourage an optimal allocation of future resources towards exploration. In particular, I argue there is a valid concern that privately optimal levels of industrial activity will fail to fully capture all potential social gains; these sub-optimal exploration levels are linked to an departure between the private and social values of exploration information.

Friday, February 22, 2013

Why We Need Transparent Commodity Trading

Revenue Watch: Switzerland is home to the world’s largest commodity trading companies. Due to their growing market shares, the recent public offering of Glencore, one of the largest traders and several scandals (like the Oil-for-Food program in Iraq) , commodity trading companies like Vitol, Trafigura, Mercuria and Glencore have begun to attract more public scrutiny. The Swiss government faces growing pressure to assess the implications of hosting these large and influential companies.

On January 17, Swissaid hosted an event on commodities and transparency attended by an audience of almost 300. At the event, senior policymakers and representatives of the trading industry heard and responded to extensive calls for greater transparency in the trade of oil, gas and minerals–especially whether Switzerland will require its commodity companies to shed light on the deals they strike with governments, many of which take place in countries with high levels of both corruption and poverty. The U.S. passed such mandatory reporting legislation in 2010, and the EU is expected to follow suit later this year...

Thursday, February 21, 2013

Natural Resources, Wage Growth and Institutions – a Panel Approach

The World Economy: This paper examines the effect of natural resource export dependence and fiscal responsibility on wage growth, which is derived from the labour first-order condition and estimated using a panel growth-accounting frame,work. Using annual data, the study accounts for the variability of resource revenues, one of the major difficulties of managing these resources. The control variables include the most crucial growth factors. Due to insufficient annual data, human capital is only considered inside wages as in many endogenous growth models. We estimate the influence on real wage growth arising from the growth-impacts of natural resources through labour and capital efficiency while controlling for fiscal responsibility, which proves a suit,able proxy for policies and institutions in a single-panel case. The results show that responsible fiscal policy, assessed by the bud,get balance, pre,vents (variable) diffuse and point-source resources from hindering real wage growth (through labour efficiency), a result also significant in a sub-sample of un-free countries. The hypothesis of a resource curse working through institutions and reflected on real wage growth holds for resource export shares, but not adjusting for re-exportation. Over,all, resource effects are jointly insignificant, even though point-source resources show a positive impact through capital efficiency.

Wednesday, February 20, 2013

China’s foreign oil output surges

Financial Times: China is on track to produce enough crude oil outside its borders to rival Opec members such as Kuwait and the United Arab Emirates, after its state-owned oil companies spent a record $35bn buying foreign rivals last year.

In the first tally of the impact of China’s recent overseas oil investments, the International Energy Agency calculates China’s national oil companies will produce 3m barrels a day abroad in 2015, almost double their 2011 overseas output of just over 1.5m b/d and equivalent to Kuwait’s annual output...

Environmental Macroeconomics: Environmental Policy, Business Cycles, and Directed Technical Change

NBER WP: Environmental economics has traditionally fallen in the domain of microeconomics, but recently approaches from macroeconomics have been applied to studying environmental policy. We focus on two macroeconomic tools and their application to environmental economics. First, real business cycle models can incorporate pollution and pollution policy and be used to answer several questions. How can environmental policy adjust to business cycles? How do different types of policies fare in a context with business cycles? Second, endogenous technological growth is an important component of environmental policy. Several studies ask how policy can be designed to both tackle emissions directly and influence the adoption of clean technologies. We focus on these two aspects of environmental macroeconomics but emphasize that there are many other potential applications.

Tuesday, February 19, 2013

Long-Run Effects of Resource Rents in Developing Countries

OxCarre WP by Woldeyes: The paper studies the long-run effects of shocks to resource rents on the economy using a structural vector error correction model for 37 developing countries. First, the long-run relations involving resource rents and the economy differ for resource importers and exporters. Second, there is an indirect effect from resource rents to output through public capital accumulation for resource exporters. Third, although resource rents have a positive long-run impact on output, good public investment management is required for resource rents to improve non-resource output.

Monday, February 18, 2013

Ugandan Journalist on His Country's Path to Avoid the Resource Curse

Revenue Watch: After a past ridden with poverty, corruption and civil unrest, Uganda has the potential to change its course with the recent discovery of oil. An oil reserve estimated to hold 800 million barrels and to generate $2 billion annually for more than 20 years could help Uganda accelerate its growth and diversify its economy—if the right steps are taken.

Angelo Izama, a journalist for the regional newspaper, The East African, is optimistic. He believes Uganda can avoid the resource course if the public gets engaged, government institutions evolve with the country’s needs, good laws are not only put into place but also enforced, and democracy finally prevails over political patronage in the next election.

“We are already in great shape,” Izama said. “Why? Because we have time. Uganda doesn’t start oil production until 2017, so we have the time to sort ourselves out. We have the time to escape the resource curse before we even extract oil from the ground.”...

Saturday, February 16, 2013

High-stakes game of oil use

PNAS: ...philosophical battle on the mythical island of Catan... teams of four to six players leaned across game boards divided into a series of landscapes, or hexes, each rich with a natural resource that could be traded to populate the island with settlements, cities, and metropolises. In the Oil Springs iteration of the Settlers of Catan, a game first introduced by Klaus Teuber in 1995, one thing is clear, says designer Ty Hansen: “It’s all about oil.” As the island’s single most valuable natural resource, oil can be sequestered to protect the environment or traded so extensively for resources that its overuse triggers a series of natural disasters that culminate in the inundation of the island—and loss of the game...

Friday, February 15, 2013

Azerbaijan: Inclusive Growth in a Resource-Rich Economy

New World Bank book: Azerbaijan experienced a “golden age” in the last decade, during which the average growth rate reached record high levels and poverty decreased significantly. On average, the economy grew by 15.3 percent per year in real terms during this period. As a result, poverty declined dramatically from 49.6 percent in 2001 to 15.8 percent in 2008. This study takes an inclusive growth approach to investigating the ways in which the country’s high growth was translated into significant poverty reduction. The report first investigates the sources of growth in Azerbaijan with an emphasis on sectoral composition and structural transformation, and then explores how growth helped to reduce poverty. Next, it analyzes the sustainability and inclusiveness of the recent growth, and focuses on the structural obstacles that constrain further inclusive growth in Azerbaijan. Finally, it recommends a set of policies to overcome these obstacles. The main findings of this study call for a careful strategy in promoting further inclusive growth in Azerbaijan. Poverty is found to be reduced mainly by oil-financed social transfers and real wage growth, which in turn were made possible by Azerbaijan’s sharply increasing oil revenues. However, as the share of hydrocarbon sector grew in the economy, structural transformation towards diversification and balanced growth stalled. Moreover, the sectoral composition of recent growth has not been conducive to employment creation. To further strengthen inclusiveness, therefore, there is a need for diversification and improvement in labor market outcomes. This study also identifies areas where policy adjustments can unleash further inclusive growth in the non-oil economy. These include promotion of a greater economic integration into world markets, introduction of a robust and long-term oriented fiscal rule that limits and smoothes the domestic absorption of oil revenues, removing the skill mismatches and distortionary tax incentives that may create adverse incentives in the labor market, and improving institutional aspects of the business environment. A broad strategy for promoting inclusive growth involves implementing these policies in a systematic fashion.

Thursday, February 14, 2013

Algeria’s oil and gas

The Economist: Recent events and wariness of foreign investors dent the oil-and-gas economy... TIGHT military control and generous spending on social services, thanks to the high price of oil and gas that Algeria has in abundance, have so far prevented President Abdelaziz Bouteflika and his regime from being shaken by the upheavals in other Arab countries...

Wednesday, February 13, 2013

Climatic Fluctuations and the Diffusion of Agriculture

NBER WP: This research examines variations in the diffusion of agriculture across countries and archaeological sites. The theory suggests that a society’s history of climatic shocks shaped the timing of its adoption of farming. Specifically, as long as climatic disturbances did not lead to a collapse of the underlying resource base, the rate at which foragers were climatically propelled to experiment with their habitats determined the accumulation of tacit knowledge complementary to farming. Thus, differences in climatic volatility across hunter-gatherer societies gave rise to the observed spatial variation in the timing of the adoption of agriculture. Consistent with the proposed hypothesis, the empirical investigation demonstrates that, conditional on biogeographic endowments, climatic volatility has a non-monotonic effect on the timing of the adoption of agriculture. Farming diffused earlier across regions characterized by intermediate levels of climatic fluctuations, with those subjected to either too high or too low intertemporal variability transiting later.

Tuesday, February 12, 2013

Limiting Australia’s ballooning coal exports is good for the economy

The ConversationResearch by The Australia Institute suggests that slowing down the pace of coal exports would actually result in enormous benefits to the Australian economy. It would allow our other key export industries – including manufacturing, tourism, education and agriculture – to expand, employing more people and paying more tax. Because these industries are all far more labour intensive than mining, less subsidised and mostly better taxpayers than mining, it would lead to more jobs and increasing state and federal revenue in the long run....

The unprecedented rise in the Australian dollar is primarily driven by increasing commodity prices, and the massive $260 billion influx of foreign capital to fund the construction of mines and gas fields... This has had a devastating impact on our non-mining exporters. Manufacturers who were receiving $100 for a product sold into the American market a few years ago now receive less than $70 for the equivalent item...

Hotel rooms, meals and tours and university courses are similarly more expensive for those thinking of visiting Australia. Australian tourism visitors have dropped by around 250,000 over the last decade, as more Australians holiday overseas, and overseas tourists go elsewhere. This is during a 20% boom in global tourism over the last decade.

Since the beginning of the mining boom, Australia’s rural sector has lost $43.5 billion in export income. This includes $14.9 billion in 2010-11 alone. These losses have occurred because the mining boom has forced the Australian dollar to historic highs. The beef industry took a $2 billion dollar hit last year alone...

Adding fuel to the fire, the mining boom has created an acute skills shortage. This is simple supply and demand. If you plan to build $260 billion dollars’ worth of mining projects at once, it will create enormous demand for a narrow set of skills that are also important to other industries. This makes it much harder for other businesses to recruit and retain employees...

Monday, February 11, 2013

Dude, where's my cheap gas?

Hamilton on Econbrowser: Those who have been told that oil production is booming may be wondering why the prices of oil and gasoline are climbing again...

What can we do to put a stop to global warming?

Noahpinion: U.S. total energy-related carbon emissions are down 13% since 2007. That's huge. Although the U.S. refused to sign the Kyoto Protocol, we managed about 70% of the emissions reductions mandated by that treaty (which is much better than most of the actual signatories!).
Renewable energy now provides 12.1% of U.S. energy. That is big.

Energy demand has fallen 6.4% since 2007, even though GDP is slightly higher. Hence, energy efficiency is responsible for the reduction in demand. That is good.

Gas is replacing coal. That is good, provided that wellhead methane emissions are not making up the difference.

Bottom line: If the U.S. were the world, the fight against global warming would be going well.

OK, now for the bad news: The U.S. is not the world. Global warming is global. The only thing that matters for the world is global emissions. And global emissions are still going up, thanks to strong increases in emissions in the developing world, notably China.

Figures released this week show skyrocketing Chinese coal use. China now burns almost as much coal as the rest of the world combined...

Friday, February 8, 2013

Oil Supply Crises: Cooperation and Discord in the West

New IMF book: Oil Supply Crises: Cooperation and Discord in the West, by Vessela Chakarova, offers the most comprehensive, up-to-date analysis of consumer countries’ policies and reactions to oil supply shortages. In addition to being a valuable source of information on oil market dynamics, it provides a deep theoretical understanding of one of the most critical issues in international relations: inter-state cooperation. This volume employs a structured focused comparison to study European consumer countries’ cooperation in times of oil supply shortages. There have been fifteen such crises since the Second World War, three of which with dramatic consequences for the world economy. This analysis evaluates European cooperative efforts in seven of these cases, starting with the Abadan crisis in 1951. The cases are selected on the basis of their magnitude and economic impact. In particular, the study looks at intergovernmental negotiations within existing international bodies prior to, during, and immediately after the crisis. This study suggests that institutions are more likely to facilitate interstate cooperation in the presence of a strong leader— a role, which in the case of oil was assumed by the United States until the early 1970s. Cooperation in the oil issue-area has been the subject of only a few studies, none of which provides a systematic and comprehensive analysis. They are also limited in their scope and findings. Oil Supply Crises fills a significant gap in the literature on oil supply shortages and cooperation.

Thursday, February 7, 2013

Hotelling Meets Darcy: A New Model of Oil Extraction

New paper by Mason and van't Veld: For decades resource economists have relied on the seminal Hotelling paper to model extraction and price paths, despite overwhelming evidence of the empirical limitations of the approach. Particularly in oil markets, the shortcomings of the Hotelling approach are evident: for over 100 years real oil prices were basically constant, in marked contrast to the prediction that rents should rise at the rate of interest. A number of explanations have been o ffered, including the steady flow of newly found deposits and technological advances that might have continually shifted the price path out, thereby obscuring what otherwise would have been the trend towards higher prices. While these aspects are no doubt important the conventional explanation misses what we believe to be a crucial ingredient, namely production constraints that inhibit agents' ability to shift production forward in time. These constraints are rooted in the physical constraints associated with subterranean fluid flows, as articulated by d'Arcy. In particular, d'Arcy's approach predicts that output from any given well decline exponentially, at an exogenous rate that is dictated by geological features. As such, the only variable under the extractor's control is the number of deposits to open up for extraction. We articulate a model that incorporates these features, use it to generate a predicted market equilibrium price path, and discus the impact of breakthrough innovations upon the price path.

Wednesday, February 6, 2013

Diversifying Russia

VoxEU: Russia aims to diversify its economy and reduce its dependence on natural resources. Despite laudable aims, this column argues that progress has been sluggish. Longstanding obstacles of corruption, low business-entry rates and weak competition afflict other countries that, like Russia, are in transition. Yet Russia comes pretty much bottom of the class. Crucially, the fact that economic diversification requires improvements to education and skills acquisition has been somewhat overlooked by the state. What attempts the state has made, such as supporting technology innovation, appear to have been ineffectual and, at times, counterproductive. Going forward, Russia would do well to focus on improving incentives for market-relevant research and development, complemented by private sector-led sources of finance for early-stage firms.

Tuesday, February 5, 2013

Energy: Danger money

FT: An assault on an Algerian gas facility has implications for the energy industry as oil companies review their security

Monday, February 4, 2013

From The Economist on Norway, fracking, and a new book on climate change

Norway: The Norwegians are well aware of oil’s terrible ability to turn riches into rags and sages into fools. Back in 1990 they established a sovereign-wealth fund (formally known as the Government Pension Fund Global) to prepare the country for a post-oil future and to prevent deindustrialisation. They also used the oil industry to promote other local industries such as shipping... The fund is not without its problems, such as its size (it now accounts for 1% of all the world’s stocks), its leisurely approach (it was slow to exploit the opportunities offered by the 2007-08 financial crisis) and its penchant for blacklisting offending companies. But it is nevertheless one of the best-run in the world. The Norwegians have established a clear division between the finance ministry as owner and the central bank as manager. They are now trying to improve returns and diversify risks.

Shale gas in Europe: Extracting Europe’s shale gas and oil will be a slow and difficult business

Climate change: ...For decades America was the world’s biggest polluter, contributing more to the problem than any other country, whereas Europe—at least in its politicians’ minds—has model environmental laws and holds plenty of righteous talks to negotiate new solutions... But Europe and America are becoming supporting actors in the world’s climate-change drama. The lead players are China and India. China is the world’s largest emitter, contributing nearly a quarter of current global emissions. With India it accounted for 83% of the worldwide increase in carbon emissions in 2000-11. Though global warming began with industrialised countries it must end—if it is to end—through actions in developing ones. All the more reason to welcome “Greenprint”, the first book on climate change to concentrate on this growing part of the problem. Written by Aaditya Mattoo and Arvind Subramanian, two Indian economists based in Washington, DC, the book offers an unflinching look at what one might realistically expect emerging markets to do.

Sunday, February 3, 2013

U.S. Should Act Unilaterally on Climate Change

Cass Sunstein: ... pragmatic steps by the planet’s most important nation are likely to help spur action by others -- and to lead to technological advances that will ultimately be in the interest of the world as a whole.

Saturday, February 2, 2013

In Energy Taxes, Tools to Help Tackle Climate Change

NY Times: To understand the complicated politics of climate change in the United States, you may want to talk to Pamela Johnson, president of the National Corn Growers Association’s Corn Board.
She is concerned about the weather. The drought that parched the lower 48 states cut the harvest at her northern Iowa farm by about 40 bushels an acre. For the first time in memory, she says, she had to rely on the federally subsidized crop insurance program to stay afloat.
And yet Ms. Johnson’s main concern, and that of most other growers in the association, is not about how to deal with a changing climate — how to slow the pace of warming and how to adapt to a warmer world with more erratic weather...

Friday, February 1, 2013

The Implications of Natural Resource Exports for Non-Resource Trade

OxCarre WP by Harding and Venables: Foreign exchange windfalls such as those from natural resource revenues change non-resource exports, imports, and the capital account. We study the balance between these responses and, using data on 41 resource exporters for 1970-2006, show that the response to a dollar of resource revenue is, approximately, to decrease non-resource exports by 75 cents and increase imports by 25 cents, implying a negligible effect on foreign saving. The negative per dollar impact on exports is larger for countries which have good institutions and higher income levels. These countries have a higher share of manufacturing in their non-resource exports, and we show that manufactures are more susceptible than other products to being crowded out by resource exports.