Monday, September 2, 2013

Why does natural resource abundance not always lead to better outcomes?

WP from the Oxford Institute for Energy Studies: Is the failure of natural resource abundance to achieve better economic outcomes due to limited financial development or fi scal policy short-termism? I answer this
question in a precautionary savings model where both resource revenues and asset returns are uncertain. Calibrating for Colombia, I find that under policy impatience, welfare costs are large, net assets are insufi cient and net discretionary expenditures are too sensitive to resource revenues. If fi nancial markets are underdeveloped, we can generate welfare costs of the same magnitude but not also explain why there are insu cient net e ective assets, nor the heightened sensitivity to revenues.

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