Saturday, November 30, 2013

Just 90 companies caused two-thirds of man-made global warming emissions

The Guardian: The companies range from investor-owned firms – household names such as Chevron, Exxon and BP – to state-owned and government-run firms. The analysis ... has been accepted for publication in the journal Climatic Change.

Friday, November 29, 2013

Military Expenditures and Natural Resources

Defence and Peace Economics: It has been argued that the discovery of a new natural resource greatly increases the risk of conflict. This research aims to study the effect of natural resources on military spending, using the data from rentier states in the Middle East and North Africa (MENA) countries from 1987 to 2012. In considering the ‘resource curse,’ the types of natural resources matter. Our empirical results demonstrate that the ‘resource curse’ arising from the abundance of certain natural resources, particularly oil and forest resources, leads to increases in military spending. In contrast, the rent from coal and natural gas has a negative impact on military spending, while the rent from minerals has no impact on military spending, controlling for GDP growth and per capita income.

Why do Mexicans get so worked up about their oil?

The Economist: "EL PETROLEO es nuestro!" ("The oil is ours!"). This cry, which rang out in the streets when President L├ízaro C├írdenas nationalised the oil industry in 1938, still resonates in Mexico...

Thursday, November 28, 2013

The Financialization of Commodity Markets

NBER WP: The large inflow of investment capital to commodity futures markets in the last decade has generated a heated debate about whether financialization distorts commodity prices. Rather than focusing on the opposing views concerning whether investment flows either did or did not cause a price bubble, we critically review academic studies through the perspective of how financial investors affect risk sharing and information discovery in commodity markets. We argue that financialization has substantially changed commodity markets through these mechanisms.

Wednesday, November 27, 2013

Resource-based FDI and Expropriation in Developing Economies

Journal of International Economics: Globally, foreign direct investment (FDI) assets are expropriated more in resource extraction industries compared to other sectors. Despite the higher apparent risk of expropriation in resources, countries more likely to expropriate also have a larger share of FDI in the resource sector. An incomplete markets model of FDI is developed to account for this puzzle. The type of government regime is stochastic, with low penalty regimes facing a relatively low, exogenous cost of expropriating FDI, and country risk is measured by the variation in these costs across different regimes. The key innovation of the model is that the government, before the regime type is known, is able to charge different prices to domestic and foreign investors for mineral rights. Granting cheap access increases FDI and reduces the country’s share of resource rents, increasing the temptation to expropriate in a relatively low penalty regime. In very high-risk countries, subsidizing resource FDI increases the total value of output by raising investment, and the net gains from expropriating in a low penalty regime outweigh the rents foregone under a high penalty one. However, a stochastic resource output price results in relatively low-risk countries restricting FDI inflows to the resource sector instead - "windfall profits" in this sector raise incentives to expropriate when prices are high, yet minimization of the ex ante risk of expropriation is preferred owing to the relatively high penalty for expropriating. These results imply a higher average share of resource-based FDI in countries most likely to expropriate, while resources account for a high share of expropriated assets compared to the sector’s global share of FDI. We show that the model is able to reconcile observed patterns of foreign investment and expropriation for a sample of 38 developing and emerging economies.

Tuesday, November 26, 2013

Can Negotiating a Uniform Carbon Price Help to Internalize the Global Warming Externality?

Martin Weitzman: Thus far, most approaches to resolving the global warming externality have been quantity based. With n different national entities, a meaningful comprehensive treaty involves negotiating n different binding emissions quotas (whether tradeable or not). In post-Kyoto practice this n-dimensional coordination problem has proven intractable and has essentially devolved into sporadic regional volunteerism. By contrast, on the price side there is a natural one-dimensional focus on negotiating a single binding carbon price, the proceeds from which are domestically retained. Significantly (and unlike negotiated quantities) the negotiated uniform price on carbon emissions embodies an automatic "countervailing force" against free-riding self interest by incentivizing agents to internalize the externality. The model of this paper indicates an exact sense in which each agent's extra cost from a higher emissions price is counter-balanced by that agent's extra benefit from inducing (via the higher emissions price) all other agents to simultaneously lower their emissions. With some further restrictions, the theoretical model shows that population-weighted majority rule for a uniform price on carbon emissions can come as close to global efficiency as the median marginal benefit (per capita) is close to the mean marginal benefit (per capita).

Monday, November 25, 2013

What Do We Learn from the Weather? The New Climate-Economy Literature

NBER WP: A rapidly growing body of research applies panel methods to examine how temperature, precipitation, and windstorms influence economic outcomes. These studies focus on changes in weather realizations over time within a given spatial area and demonstrate impacts on agricultural output, industrial output, labor productivity, energy demand, health, conflict, and economic growth among other outcomes. By harnessing exogenous variation over time within a given spatial unit, these studies help credibly identify (i) the breadth of channels linking weather and the economy, (ii) heterogeneous treatment effects across different types of locations, and (iii) non-linear effects of weather variables. This paper reviews the new literature with two purposes. First, we summarize recent work, providing a guide to its methodologies, data sets, and findings. Second, we consider applications of the new literature, including insights for the “damage function” within models that seek to assess the potential economic effects of future climate change.

Sunday, November 24, 2013

The kindly assistance of the ‘Angola Lobby’

presseurop: In the second part of its investigation into Angolan acquisitions in the Portuguese capital, French news website Mediapart explores how close ties between Portuguese politicians and the former colony are responsible for "self-censorship" by the Portuguese media, EU and justice system over the issue of the origin of dubious Angolan capital.

Lisbon closes its eyes to “dirty money” from Luanda

presseurop: Battered by the crisis, the ancient city has become a “supermarket” where the new fortunes of the former colony, beginning with the family of President Dos Santos, are increasing their stakes in banks and real estate. In Lisbon, the dubious origin of some of the capital has caused concern, reveals Mediapart...

Saturday, November 23, 2013

Why do Corrupt Countries Join EITI?

ERCAS WP: Rules that require actors to make their finances transparent have become a key part of the anti-corruption toolkit, under the assumption that sunlight is the best disinfectant. This logic underpinned the creation, in 2002, of the Extractive Industries Transparency Initiative (EITI), an international club aimed at reducing corruption in oil, gas and mining. The initiative has proved popular, with 16 countries now EITI compliant and 23 others having achieved candidate status. However, as a soft law standard to which countries voluntarily commit, EITI presents a paradox: why would corrupt governments voluntarily expose themselves to sunlight? Does its popularity imply that it is meaningless? We argue that governments join because they are concerned about their reputation with international donors and expect to be rewarded by increased aid. Our quantitative analysis demonstrates that countries do gain access to increased aid the further they progress through the EITI implementation process. However, we also find that EITI achieves real results in terms of reducing corruption. We suggest that this is because EITI requires countries to build multi-stakeholder institutions which improve accountability, and provide qualitative evidence about how this has worked in several countries.

Friday, November 22, 2013

Democracy in Africa

Gylfason on VoxEU: Based on statistical measures of different degrees of democracy vs. autocracy, this article briefly reviews the progress of democracy around the world during the past 212 years, and places democratic developments in Africa since 1960 in that context. Democracy is positively associated with education, which in turn is associated with lower fertility and greater longevity. Democracy is also associated with reduced corruption. Together, these effects suggest democracy should be good for growth – a hypothesis that is borne out by the data.

Thursday, November 21, 2013

Extractive industries, development and the role of donors

DfiD WP: Extractive Industries (EI) explore, find, extract, process and market sub-soil assets – oil, gas and mined minerals. EI represent a large and growing activity in many less-developed countries. But natural resource wealth does not always lead to sustainable and inclusive growth. This guide sets out the recent rise in importance of EI to less-developed countries. It provides a framework for thinking about (i) the socio-economic impacts of these industries and (ii) the relationship between EI, host country public policies and donor activities.

Wednesday, November 20, 2013

To Keep from Sp-Oiling

The Harvard Independent: So how can we avoid the oil curse? Prime Minister Stoltenberg listed three main strategies that Norway adopted.

Strategy one: Keep expenses below revenue...

Strategy two: Keep people at work... Their current high employment rates, and in particular, a very high female labor employment rate, contributes more to their economy than revenues from gas and oil.

Strategy three: Increase productivity... Prime Minister Stoltenberg says that the government has worked hard to create a good business environment.


Tuesday, November 19, 2013

How to drive climate ambition

Thomas Hale at BSG: In the past, some of the countries and civil society groups most committed to stopping climate change have opposed efforts to bring bottom up actions into the UN talks, seeing them as a distraction from the “real” negotiations. But continuing to talk about a global deal without a strategy for creating the conditions that will make it possible is the real definition of insanity. Bringing bottom-up momentum into the UN talks could be the best way to avoid another 19 years of gridlock.

Monday, November 18, 2013

Effects of Carbon Taxes in an Economy with Large Informal Sector and Rural-Urban Migration

OxCarre WP: I build an equilibrium search and matching model of an economy with an informal sector and rural-urban migration to analyze the e ects of budget-neutral green tax policy (raising pollution taxes, while cutting payroll taxes) on the labor market. The key results of the paper suggest that when general public spending varies endogenously in response to tax reform and higher energy taxes can reduce the income from self-employed work in the informal sector, green tax policy can produce a triple dividend: a cleaner environment, lower unemployment rate and higher after-tax income of the private sector. This is due to the ability of the government, by employing public spending as an additional policy instrument, to reduce the overall tax burden when an increase in energy tax rates does not exceed some threshold level. Thus governments should employ several instruments if they are concerned with labor market implications of
green tax policies.

Fueling the Fire: Pathways from Oil to War

International Security: What role does oil play in international security? While the threat of “resource wars” over possession of oil reserves is often exaggerated, the sum total of the political effects generated by the oil industry makes it a leading cause of war. Between one-quarter and one-half of interstate wars since 1973 have been connected to one or more oil-related causal mechanisms. Eight distinct mechanisms exist: resource wars, in which states try to acquire oil reserves by force; petro-aggression, whereby oil facilitates domestic political control of aggressive leaders such as Saddam Hussein or Ayatollah Ruhollah Khomeini; externalization of civil wars in petrostates; financing for insurgencies, such as Iranian oil money to Hezbollah; conflicts over potential oil-market domination, such as the United States’ conflict with Iraq over Kuwait in 1991; control over transit routes, such as shipping lanes and pipelines; oil-related grievances, whereby the presence of foreign workers in petrostates helps extremist groups such as al-Qaida recruit locals; and as an obstacle to multilateral cooperation, such as when an importer curries favor with a petrostate to prevent multilateral cooperation on security issues. Understanding these mechanisms can help policymakers design grand strategy and allocate military resources.

Sunday, November 17, 2013

President’s son offers Equatorial Guinea’s national team a bonus of $6,7m if they beat Spain in friendly

Africa is a country: El Mundo now reports that Equatorial Guinea’s only TV station (owned by Teodorin, the President’s son) announced he had told the head of the national football federation that he’d give a bonus of €5 million to the national team if they beat Spain. Of course this would all come out of the government’s budget which the Obiangs treat like their personal bank account. We wonder what he’d offer the team if they win an actual competitive match (he offered €751,265 to the team if they beat Libya in a first round African Cup of Nations tournament match in January 2012). But we also think Teodorin might be bluffing given Spain’s current position in world football against that of Equatorial Guinea–ranked 119th by FIFA. In any case, this is not the first time, Teodorin has acted like the public purse is his private bank account. Just google his name. One Blog listed at least nine of the bizarre things he’s paid with the people’s money (these include: Michael Jackson’s “Bad Tour” glove, a 16th century gold vermeil elephant once owned by Yves Saint Laurent, renting a $700,000 yacht to throw a party for his former rapper girlfriend Eve, houses, expensive cars and a Gulf Stream jet.) To that we can add the record company that produced no music, white tigers he rented for a party (!), 15,000 DVDs (a Guardian reported calculated that’s about 41 years worth of watching films), rugs for his Malibu house ($59,850), and spending $1 million during a night of partying in Cape Town. This is who is hosting Xavi, Iniesta, Sergio Ramos and Casillas et al, for a game on Sunday.

Saturday, November 16, 2013

Dutch disease and spending strategies in a resource-rich low-income country -- the case of Niger

World Bank WP: This paper examines spending plans suggested by the recent literature regarding Dutch disease and examines their implications to Niger relative to its expanding mineral sector. The key to the benefits of significant mineral revenue lies with the productivity and supply responses of spending. If significant output gain is ensured, then there is little difference across the spending plans in their effects on real consumption. The overshooting of relative prices of the non-tradable sector or the shrinking share of traded sectors in gross domestic product is also ameliorated with greater supply flexibility. Growth paths of alternative spending strategies differ markedly in timing and pattern when spending does not raise productivity. As a caution against expectations that exaggerate the benefits of mineral revenue under all circumstances, the more aggressive spending plan may result in a boom-bust cycle if fiscal adjustments and debt repayments are necessary for any significant borrowing against future revenue and productivity gains are not realized. Using extractive industries revenue for transfers to households would have a greater effect on poverty reduction in the short and medium term but the long-run gains from investment in human and physical capital are likely to offset the initial lack of pro-poor bias. Different strategies differ significantly with regard to risks and required technical implementation capacity and political capacity to sustain a chosen course of action.

Thursday, November 14, 2013

Global Warming and Global Security

Project Syndicate: When I was a major general in Bangladesh’s military, my job was to avoid conflict while planning for the worst-case scenario. And, from the perspective of the military, the consequences of global warming constitute the worst-case scenario.

Wednesday, November 13, 2013

How Oil Influences U.S. National Security

International Security: How do states’ oil requirements influence U.S. national security? Although a great deal of attention has focused on “energy security,” scholars and policymakers lack satisfactory answers because little analysis links states’ energy requirements with the probability of military conflict. Developing an analytic catalogue of the ways in which states’ oil requirements could influence U.S. national security is the first step in closing this gap. Possible mechanisms include vulnerable access to oil that threatens a state’s military capability; military policies designed to protect access to oil that threaten another state’s military capability, which in turn create an access-driven security dilemma; and oil reserves that increase the value of territory, generating a conflict that draws in the United States via an alliance commitment. A distinctive feature of this framework is that some of these mechanisms identify threats to U.S. security that flow from another country’s consumption of oil, not from U.S. consumption. Of particular importance is the potential danger that Chinese oil imports create for U.S. security—China’s efforts to protect its sea lines of communication are fueling military competition that could strain U.S.-China relations and increase the probability of conflict between them. Policy options for dealing with these dangers share little with the standard options prescribed for dealing with the dangers related to Persian Gulf oil and U.S. oil consumption.

Tuesday, November 12, 2013

The Macroeconomics of the Arab States of the Gulf

New IMF book: The economies of the Arab states of the Gulf have gone through considerable changes in the last decade, spurred by high oil prices and ambitious diversification plans. Large-scale immigration provided the labour force while capital inflows and financial development leveraged oil wealth to finance diversification. The collapse in real estate prices around the world followed by the global crisis slowed growth and raised questions on the appropriateness of what has been dubbed the 'GCC model'. The Gulf Cooperation Council (GCC) countries have thus far managed to leverage their large natural resource wealth to achieve economic prosperity and finance social advances, and the region also emerged as an important source of funds for the other countries in the Middle East. Nevertheless, the GCC face several challenges. Productivity growth must increase to fully reap the benefits of investment. Jobs must be created for the nationals and the growing youth population. State intervention (which is prevalent, given that oil revenues accrue to the government) must become efficient and be used to diversify and modernize the economy. In addition, the recent crisis highlighted the importance of fiscal, monetary, and financial stability policies to manage macroeconomic cycles. This book analyses these issues and combines data and econometric analysis with theoretical discussions. It concludes with a discussion of the importance of the GCC for the wider region.

Monday, November 11, 2013

The Coming Collapse of the Gulf Monarchies

Foreign Affairs: Since their modern formation in the mid-twentieth century, Saudi Arabia and the five smaller Gulf monarchies -- Bahrain, Kuwait, Oman, Qatar, and the United Arab Emirates  -- have been governed by highly autocratic and seemingly anachronistic regimes. Nevertheless, their rulers have demonstrated remarkable resilience in the face of bloody conflicts on their doorsteps, fast-growing populations at home, and modernizing forces from abroad.

One of the monarchies’ most visible survival strategies has been to strengthen security ties with Western powers, in part by allowing the United States, France, and Britain to build massive bases on their soil and by spending lavishly on Western arms. In turn, this expensive militarization has aided a new generation of rulers that appears more prone than ever to antagonizing Iran and even other Gulf states. In some cases, grievances among them have grown strong enough to cause diplomatic crises, incite violence, or prompt one monarchy to interfere in the domestic politics of another...

Saturday, November 9, 2013

Flocking to Greenland in the next great contest for mineral riches

Foreign Affairs: Global power brokers once dismissed Greenland as a white blot on the world map. No longer: Investors from Australia to Canada to China are flocking to the island in the next great contest for mineral riches...

Friday, November 8, 2013

U.S. State Fiscal Policy and Natural Resources

OxCarre WP: An analytical framework predicts that, in response to an exogenous increase in resource based government revenue, a benevolent government will partially substitute away from taxing income, increase spending and save. Forty-two years of U.S. state-level data are consistent with this theory. Specifically, a baseline fixed effects model predicts that a 1% point increase in resource revenue results in a .20% point decrease in non-resource revenue, a .50% point increase in spending and a .30% point increase in savings. These results are generally robust to alternative model specifications and the instrumentation of resource-based government revenue. Interaction effects reveal some asymmetry in the fiscal response to revenue shocks according to state political leanings.

Thursday, November 7, 2013

Resource-Backed Investment Finance in Least Developed Countries

World Bank: The global financial crisis and shrinking aid flows have led to decreased availability of long-term debt finance for Least Developed Countries (LDCs), particularly for infrastructure. On the other hand, resource-related foreign direct investment (FDI) in those countries has remained substantial. This note presents two models in which the natural resource wealth of LDCs has been used as a means to overcome the dearth of finance sources necessary for non-resource-related investments, and outlines country-specific factors that could tilt the balance between risks and opportunities to the latter.

Wednesday, November 6, 2013

Extent of Peruvian Amazon lost to illegal goldmines mapped

The Guardian: The area affected by illegal gold mining in Peru's south-eastern Amazon region increased by 400% from 1999 to 2012, according to researchers using state-of-the-art mapping technology.

Tuesday, November 5, 2013

Dynamic Carbon Leakage and Taxation with Depletion and Discounting

Florian Habermacher: This treats various aspects of unilateral carbon taxation in presence of exhaustible fuels. A method to disentangle terms-of-trade and pollution components of the committed optimal unilateral tax on exhaustible fossil fuels is provided. The method is used to replicate the optimal dynamic green tax path in a numerical model. We discuss de nitions of leakage rates and their relation to optimal taxation and welfare. It becomes apparant that leakage e ects are crucially related to intrinsically dynamic aspects such as the time discount rate and future technological and political developments. In a calibrated, dynamic fuel market model with empirical fuel extraction cost curves we study leakage and optimal unilateral tax paths for the OECD. They vary strongly with model assumptions. The strong curvature of marginal oil extraction costs from empirical estimations, and coal liquefaction providing a dirty backstop speci cally for oil, as well as a clean backstop for fossil fuels tend to have strong e ects on the evolution of leakage rates. Leakage e ects can be very large, even if future emissions are discounted. The rates di er strongly across fuels and optimal unilateral oil and coal taxes can have opposite signs; not much is left of the idea that carbon taxes should be uniform. Notably, liquefaction can lead to negative leakage rates from oil emission reductions and consequently optimal oil emission taxes above the WTP for global emission reductions. In presence of an endogenous clean backstop, in contrast, oil savings tend to prolongate the fossil fuel era and increase global fossil fuel emissions. This can imply leakage rates above unity and negative optimal unilateral oil emission taxes, whilst for coal, limited leakage warrants positive taxes. Green Paradox e ects tend to lead to increased present value emissions for anticipated taxes. That the welfare relevant leakage rate even for current taxes varies so strongly with discounting and longer term developments causts doubt on the bulk of the existing leakage literature which limits the attention to the next few decades and hardly aggregates e ects of a current tax in terms of net present value.

Monday, November 4, 2013

The Shale Gas and Tight Oil Boom: U.S. States’ Economic Gains and Vulnerabilities

Council on Foreign Relations: The "shale revolution" has stimulated tremendous production of oil and natural gas in the United States. The revolution is the product of advances in oil and natural gas production technology—notably, a new combination of horizontal drilling and hydraulic fracturing. These technological advances combined with high oil and gas prices have enabled increased production of the abundant oil and natural gas resources in the United States...

Given that oil is priced on an international market, increased domestic oil production will not do much to lower prices for U.S. consumers, as any gains in U.S. production will be spread across the international market. Greater reliance on domestic oil resources in substitution for imports will reduce the vulnerability of the economy to oil supply disruptions, although not by much.

Reduced energy use has lessened the vulnerability of the U.S. economy to oil price shocks. A similar phenomenon is seen at the state level, with many state economies having diversified away from energy-using industries. At the same time, the growing prominence of energy production can make states with small, undiversified economies more susceptible to an economic downturn during an energy price decline.

The Economist this week

Sunday, November 3, 2013

Understanding International Commodity Price Fluctuations

OxCarre-IMF intro paper for the JIMF conference volume: An overview is provided of recent work on commodity prices, focusing on three themes: (i) "financialization" of commodity markets--commodities being considered by financial investors as a distinct asset class, (ii) trends and forecasts of commodity prices, and (iii) fracking—a shorthand for the emergence of new sources of energy supply. Lessons are drawn on the role of fundamentals and expectations in driving the rapidly changing nature of commodity markets.

Saturday, November 2, 2013

Who owns Russia’s fourth-largest oil company?

FT: "Ownership of Surgutneftegaz is the number one top secret of the Russian oil industry," according to Vladimir Milov, a former deputy energy minister. So who actually controls Russia’s fourth-largest oil company?

Friday, November 1, 2013

The US corporate boom in solar power explained in five charts

Quartz: The news on the green technology front has not been good of late. As we wrote yesterday, funding for new technologies has been declining sharply. But there’s one bright spot for clean energy startups: solar power. Global photovoltaic power capacity is expected to hit a record 36,700 megawatts (MW) this year, according to market research firm Bloomberg New Energy Finance. For instance, a study released today reports that by mid-2013 commercial installations of solar panels in the US had already jumped 40% over last year to 3,380 MW...