Saturday, August 31, 2013

What Drives the Global “Land Rush”?

OxCarre WP: We review evidence regarding the size and evolution of the "land rush" in the wake of the 2007-2008 boom in agricultural commodity prices and study determinants of foreign land acquisition for large-scale agricultural investment. Using data on bilateral investment relationships to estimate gravity models of transnational land-intensive investments confirms the central role of agro-ecological potential as a pull factor but contrasts with standard literature insofar as quality of the destination country’s business climate is insignificant and weak tenure security is associated with increased interest for investors to acquire land in that country. Policy implications are discussed.

Friday, August 30, 2013

A classroom calibration of the optimal carbon tax

OxCarre WP: A classroom model of global warming, fossil fuel depletion and the optimal carbon tax is formulated and calibrated. It features iso-elastic fossil fuel demand, stock-dependent fossil fuel extraction costs, an exogenous interest rate and no decay of the atmospheric stock of carbon. The optimal carbon tax reduces emissions from burning fossil fuel, both in the short and medium run. Furthermore, it brings forward the date that renewables take over from fossil fuel and encourages the market to keep more fossil fuel locked up. A renewables subsidy induces faster fossil fuel extraction and thus accelerates global warming during the fossil fuel phase, but brings forward the carbon-free era, locks up more fossil fuel reserves and thus ultimately curbs cumulative carbon emissions and global warming. For relatively large subsidies social welfare is more likely to fall as the economic costs rises more than proportionally with the size of the subsidy. Our calibration suggests that such subsidies are not a good second-best climate policy.

Thursday, August 29, 2013

Why water is becoming the new oil

Project Syndicate: The sharpening international geopolitical competition over natural resources has turned some strategic resources into engines of power struggle. Transnational water resources have become an especially active source of competition and conflict, triggering a dam-building race and prompting growing calls for the United Nations to recognize water as a key security concern. Water is different from other natural resources. After all, there are substitutes for many resources, including oil, but none for water. Similarly, countries can import fossil fuels, mineral ores, and resources from the biosphere like fish and timber; but they cannot import water, which is essentially local, on a large scale and on a prolonged – much less permanent – basis. Water is heavier than oil, making it very expensive to ship or transport across long distances even by pipeline (which would require large, energy-intensive pumps)...

Wednesday, August 28, 2013

The Political Resource Curse

AER: This paper studies the effect of additional government revenues on political corruption and on the quality of politicians, both with theory and data. The theory is based on a political agency model with career concerns and endogenous entry of candidates. The data refer to Brazil, where federal transfers to municipal governments change exogenously at given population thresholds, allowing us to implement a regression discontinuity design. The empirical evidence shows that larger transfers increase observed corruption and reduce the average education of candidates for mayor. These and other more specific empirical results are in line with the predictions of the theory.

Tuesday, August 27, 2013

If Britain wants an American-style energy boom, it should import American-style local taxation

The Economist:  Fracking has boomed in America partly because local people have been paid off handsomely. Landowners can sell the rights to the hydrocarbons under their fields. States tax extracted oil and gas, and redistribute much of the revenue to the affected counties, which spend it on glorious schools and fire stations... In centralised Britain, by contrast, almost all the proceeds from fracking that do not flow to miners would end up in the Treasury’s coffers. Oil and gas rights are held in effect by the crown, not landowners. George Osborne, the chancellor of the exchequer, sets the tax on shale-gas production: it is 30%, much lower than taxes on North Sea fields...

Monday, August 26, 2013

Energy Efficiency Gives Us Money to Burn

Tim Harford: The broadest version of the Jevons paradox is that energy efficiency, in a very general sense, makes economic growth possible, and this in turn creates new demands for energy that swamp the initial energy saving. This claim – sometimes called the Khazzoom-Brookes postulate – is hard to evaluate. In the UK, energy consumption per person is at its lowest level for 50 years, which is a mark against Khazzoom-Brookes...

Sunday, August 25, 2013

As a Boom Slows, Peru Grows Uneasy

NY Times: Peru’s economy grew an average of 6.4 percent a year from 2002-12... But suddenly growth has slowed here... At Dock 5B, ships are loaded with Peru’s mining riches, including copper ore, lead and zinc — the raw materials that fueled the Peruvian boom with their rising prices in recent years. But in the first six months of this year, mineral shipments through the port were down 12 percent by weight... sucking the wind from the sails of Peru’s economy. This bust amid the boom has given vent to a national angst...

Saturday, August 24, 2013

African oil: new producers, new data

FT beyondbrics: Africa’s extractive industry has its fair share of challenges, but that hasn’t stopped the oil industry from charging ahead. Alongside traditional suppliers Angola and Nigeria, countries like Ghana and Equatorial Guinea are rapidly boosting their output. The continent holds 12 per cent of the world’s crude oil reserves.

It’s also means analysts and data providers need to catch up. Last week global energy data supplier Platts announced it is expanding its portfolio of African oil coverage, publishing daily price assessments for five West African grades of crude oil...

Friday, August 23, 2013

Myths and truths of the resource curse

The National: Prudent management of current revenues is one thing. The other is sound investments for the future in both physical and human capital...

Thursday, August 22, 2013

Quantifying the Influence of Climate on Human Conflict

Science: A rapidly growing body of research examines whether human conflict can be affected by climatic changes. Drawing from archaeology, criminology, economics, geography, history, political science, and psychology, we assemble and analyze the 60 most rigorous quantitative studies and document, for the first time, a remarkable convergence of results. We find strong causal evidence linking climatic events to human conflict across a range of spatial and temporal scales and across all major regions of the world. The magnitude of climate's influence is substantial: for each 1 standard deviation (1σ) change in climate toward warmer temperatures or more extreme rainfall, median estimates indicate that the frequency of interpersonal violence rises 4% and the frequency of intergroup conflict rises 14%. Because locations throughout the inhabited world are expected to warm 2 to 4σ by 2050, amplified rates of human conflict could represent a large and critical impact of anthropogenic climate change.

Wednesday, August 21, 2013

'Oil threat' to DR Congo's Virunga National Park

BBC: The conservation group WWF is calling on a UK-based company to abandon its plans to explore for oil in Africa's oldest national park. The charity says Soco International's proposals could put the Virunga National Park in the eastern Democratic Republic of Congo at risk. The park is home to more than 3,000 different kinds of animals, including endangered mountain gorillas. Soco denied that its activities threatened the environment of the park. The company said it was currently only evaluating the resources there...

Tuesday, August 20, 2013

Resource Rents, Democracy, Corruption and Conflict: Evidence from Sub-Saharan Africa

In the latest Journal of African Economies: We examine the effect of the interaction between resource rents and democracy on corruption and internal conflict for a panel of 29 Sub-Saharan African countries during the period from 1985 to 2007. We find that higher resource rents lead to more corruption and that the effect is significantly stronger in less democratic countries. Surprisingly, we also find that higher resource rents lead to fewer internal conflicts and that less democratic countries face not a higher, but a lower likelihood of conflicts following an increase in resource rents. We argue that these findings can be explained by the ability of the political elites in less democratic countries to more effectively quell the masses through redistribution of rents to the public. We support our argument by documenting that higher resource rents lead to more (less) government spending in less (more) democratic countries. Our findings suggest that the mechanisms through which resource rents affect corruption cannot be separated from political systems.

Monday, August 19, 2013

Addressing the Natural Resource Curse: An Illustration from Nigeria

In the latest Journal of African Economies: Some natural resources—oil and minerals in particular—exert a negative and non-linear impact on growth via their deleterious impact on institutional quality. We show this result to be very robust. The Nigerian experience provides telling confirmation of this aspect of natural resources. Waste and poor institutional quality stemming from oil appear to have been responsible for its poor long-run economic performance. We propose a solution for addressing this resource curse which involves directly distributing the oil revenues to the public. Even with all the difficulties that will, no doubt, plague its actual implementation, our proposal will, at the least, be vastly superior to the status quo. At best, however, it could fundamentally improve the quality of public institutions and, as a result, durably raise long-run growth performance.

Friday, August 16, 2013

Daniel Yergin on George Mitchell’s Shale Energy Innovations and Concerns

New York Times Dot Earth: As news spread over the weekend of the death of George P. Mitchell, the 94-year-old Texas oil man widely credited with playing a pivotal role in unlocking the shale energy era, I reached out for a reaction from Daniel Yergin, the Pulitzer-winning chronicler of humanity’s fossil fuel era...

Thursday, August 15, 2013

How Africa can learn from Ghana's extractive Industry

Ippmedia: Extractive industry in Africa is yet to benefit many locals due many factors such as failure by the respective governments to negotiate better deals with mining companies, signing of controversial contracts and corruption among many others. Our reporter GERALD KITABU caught up with a Ghanaian Journalist... Nyaaba Ayamga John during the ongoing training on extractive industry organized in Dar es Salaam by Revenue Watch Institute, in collaboration with Journalists’ Environmental Association of Tanzania (JET), Thomson Reuters Foundation and other partners, on the topic...

Tuesday, August 13, 2013

Climate Policy and Catastrophic Change: Averting Risk and Being Prepared

OxCarre paper: The essence of climate policy is how to prepare for catastrophic change and how to reduce the risk of such events occurring. We show within the context of the Ramsey growth model that the optimal reaction to a pending climate catastrophe is, on the one hand, to have a capital subsidy to encourage capital accumulation to be better prepared for when the disaster hits the global economy, and, on the other hand, a carbon tax to reduce the risk of the hazard occurring by curbing demand for fossil fuel and carbon emissions and reversing the increase in global warming in the business-as-usual scenario. The optimal carbon tax consists of the conventional Pigouvian present value of marginal damages, the non-marginal expected change in welfare caused by a marginal higher risk of catastrophe resulting from burning an additional unit of fossil fuel, and the expected loss in after-catastrophe welfare. The last two terms offset the precautionary increase in capital resulting from the capital subsidy. The results are illustrated with an integrated assessment model of the global economy. A linear hazard function calibrated to a 6.8% chance of a 30% drop in global GDP at 2324 GtC implies an eventual capital subsidy of 1.5% and a global carbon tax of 136 US $/tC.

Sunday, August 11, 2013

Kenyan mining minister denies corruption allegation

Reuters: Kenya's mining minister denied allegations of corruption on Friday that were leveled against him by the Kenyan subsidiary of Canadian-listed miner Pacific Wildcat Resources. Mining Secretary Najib Balala this week unexpectedly raised royalties on minerals and revoked certain mining licenses, including Cortec Mining Kenya's permit. He said the move was to ensure Kenya got a bigger share of earnings from its nascent mining sector.

Saturday, August 10, 2013

Why Transparency International’s Flagship Corruption Index Falls Short

Foreign Policy: For nearly 20 years, Transparency International has published a Corruption Perceptions Index that ranks countries (176 last year) according to how corrupt they are perceived to be by a small group of individuals. This approach was chosen in light of the difficulty of measuring actual corruption and the expense of running broad surveys. Transparency International does some great work, pushing issues of transparency and accountability up on the agenda, and there are very many serious and deeply committed people involved. The problem with the Index, however, can be found in the name. Perceptions are not facts, and in this case they may be an unhelpfully distorted reflection of the truth...

Friday, August 9, 2013

Drivers of Export Upgrading

World Development: This paper analyses the determinants of export upgrading using a cross-country panel dataset over the 1992–2006 period. The results suggest that the export sophistication of countries is enhanced by capital deepening, engagement in knowledge creation, transfers via investment in education and R&D and foreign direct investment and imports. Institutional quality also facilitates the export upgrading of countries. The effect of natural resources on the structural upgrading of exports appears to be complex and mixed and is dependent upon the type of resources involved. The effects of these determinants vary between low, middle, and high income country groups.

Thursday, August 8, 2013

Distributional Impact of Commodity Price Shocks: Australia over a Century

CSAE WP: This paper studies the distributional impact of commodity price shocks over the both the short and very long run. Using a GARCH model, we find that Australia experienced more volatility than many commodity exporting developing countries over the periods 1865-1940 and 1960-2007. A single equation error correction model suggests that commodity price shocks increase the income share of the top 1, 0.05, and 0.01 percents in the short run. The very top end of the income distribution benefits from commodity booms disproportionately more than the rest of the society. The short run effect is mainly driven by wool and mining and not agricultural commodities. A sustained increase in the price of renewables (wool) reduces inequality whreas the same for non-renewable resources (minerals) increases inequality. We expect that the initial distribution of land and mineral resources explains the asymmetric result.

Wednesday, August 7, 2013

China Coal-Fired Economy Dying of Thirst as Mines Lack Water

Bloomberg: Coal mining and power stations use as much as 17 percent of China’s water, and almost all of the collieries are in the vast energy basin in the north that is also one of the country’s driest regions...

Tuesday, August 6, 2013

US Pushes for Global Eye on South Sudan Conflict

New York Times: When the National Security Council, the most buttoned-up part of a buttoned-up Obama administration, is aggressively trying to get the word out about a violent, murky conflict in a distant land, it’s worth listening to. It’s also worth asking, why single out this crisis?...The United States and other Western nations have poured billions of dollars into South Sudan, before and after the referendum, to try to turn a destitute land, with oil reserves but a long history of violence and little in the way of institutions, into a viable country...

Sunday, August 4, 2013

Six natural resources trends to look out for in Africa

FT's beyondbrics: When it comes to natural resources in Africa, coverage tends to focus on the problematic (see Rio in Mozambique), the awkward relationships (see China), the political risk (see Congo) and the collapse in labour relations (see South Africa). But despite the setbacks, Africa still has vast untapped reserves and lots of potential. So what should investors look out for in the next few years? Research from Ecobank has identified six themes...

Saturday, August 3, 2013

The oil boom’s foreign policy dividend

Reuters: The domestic benefits of the US oil production boom are well documented — everything from the creation of high-paying jobs to sending less money to foreign oil producers. Less well appreciated are the geopolitical benefits. US oil production has already paid foreign policy dividends in at least one vital area: It has paved the way for stronger sanctions on Iran by helping to keep the global oil market well-supplied and minimizing oil price volatility...

Friday, August 2, 2013

Sorry, commodities are a poor diversification tool

Financial Times: An interesting paper has just landed on the BIS working paper site, in which the myth that commodities provide a solid diversification tool for investment portfolios has been beautifully debunked. The grounds for this are mostly due to too much correlation, and volatility. Here’s the abstract (our emphasis):

In the recent years several commentators hinted at an increase of the correlation between equity and commodity prices, and blamed investment in commodity-related products for this. First, this paper investigates such claims by looking at various measures of correlation. Next, we assess what are the implications of higher correlations between oil and equity prices for asset allocation. We develop a time-varying Bayesian Dynamic Conditional Correlation model for volatilities and correlations and find that joint modelling commodity and equity prices produces more accurate point and density forecasts, which lead to substantial bene fits in portfolio allocation. This, however, comes at the price of higher portfolio volatility. Therefore, the popular view that commodities are to be included in one’s portfolio as a hedging device is not grounded.

Thursday, August 1, 2013

Is there an African resource curse?

Oxfam: Oxfam Ambassador Anquan Boldin was among the four witnesses to offer their views to Congress on how countries’ discovery of oil, minerals and other natural resources can exacerbate poor governance and corruption, thereby denying the economic benefits of mining across populations. He was joined in the hearing by Mohammed Amin Adam, Executive Director of the Africa Centre for Energy Policy in Ghana, Tutu Alicante Leon, Executive Director of Equatorial Guinea Justice, and Corinna Gilfillan, Director of Global Witness in the US. Their responses to the question, “Is there an African resource curse?” are taken below from their testimonies.