Wednesday, January 29, 2014

Resource Blessing, Revenue Curse? Domestic Revenue Effort in Resource-Rich Countries

IMF WP: This paper uses a newly constructed revenue dataset of 35 resource-rich countries for the period 1992-2009 to analyze the impact of expanding resource revenues on different types of domestic (non resource) tax revenues. Overall, we find a statistically significant negative relationship between resource revenues and total domestic (non resource) revenues, including for the major tax components. For each additional percentage point of GDP in resource revenues, there is a reduction in domestic (non resource) revenues of about 0.3 percentage points of GDP. We find this primarily occurs through reduced effort on taxes on goods and services—in particular, the VAT— followed by a smaller negative impact on corporate income and trade taxes.

Tuesday, January 28, 2014

Spillovers of a Resource Boom: Evidence from Zambian Copper Mines

New OxCarre WP: Do local populations benefi t from resource booms? How strong are market linkages between the mining sector and the regional economy? This paper exploits exogenous variation in mine-level production volumes generated by the recent copper boom in Zambia to shed light on these questions. Using a novel dataset, I find robust evidence that an increase in local copper production improves living standards in the surroundings of the mines even for households not directly employed in the mining sector: a 10% increase in constituency-level copper output is associated with a 2% increase in real household expenditure; positive e ffects on housing conditions, consumer durable ownership and  child health are of similar magnitude. The positive spill-overs extend to the rural hinterland of mining cities, neighboring constituencies, and constituencies on the copper transportation route. Additionally, I identify boom-induced changes in the demand for services and agricultural products as key channels through which the urban and rural populations benefi t from the mine expansions. Since the boom failed to generate fiscal revenues, these e ffects can be interpreted as the result of the mines' backward linkages. Taken together, these fi ndings highlight the welfare potential of local procurement policies in resource rich developing countries.

Monday, January 27, 2014

Resource-based FDI and expropriation in developing economies

JIE: 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.

Friday, January 24, 2014

Was the UK government’s use of North Sea Oil a scandal?

mainly macro: Aditya Chakrabortty of the Guardian thinks so, as do many on the left. The evidence appears at first sight quite strong, if we compare the UK to Norway. The Norwegian government invested the proceeds from its share of North Sea oil in a sovereign wealth fund, and as a result each Norwegian citizen is currently about $150,000 richer. The fund holds on average 1% of the world's shares. In contrast, there is no equivalent UK sovereign wealth fund, but just a lot of UK government debt. QED?

Unbridled oil consumption in the Middle East could pose a threat to the region and beyond

FP: The region's surge in demand over the past decade, and the likelihood of further increases in its consumption over the next 20 years, raise serious concerns about Middle Eastern countries' ability to keep exporting large volumes of oil. That could upend global oil-market balances, seriously erode the finances and domestic stability of important countries in the region, and spark even more regional instability.

Thursday, January 23, 2014

governor of Nigeria’s Rivers State... is sitting on billions of barrels of oil and aspires to much more

Slate: The oga is Chibuike Rotimi Amaechi, governor of Nigeria’s Rivers State, the man who sits atop most of the more than 37 billion barrels of proven oil reserves that lie under the serpentine waterways of the Niger Delta. At 48, he is a tall, well-built man, every inch the statesman from his gold-faced watch to his measured charm. We wait for his private jet to be readied for the flight to Port Harcourt, the seat of his government and the hub of the delta’s oil industry.

A fix for the climate The economic benefits and costs of mitigating global warming are widely debated. This column shows that based on current scientific knowledge and standard economic principles, a simple formula for the marginal damage of emissions can be constructed. The formula considerably strengthens the case for carbon taxation versus caps, allows straightforward calculation of the ‘global carbon debt’ rich nations owe to poor nations and future generations, and offers a yardstick for carbon capture and storage investments.

Wednesday, January 22, 2014

Haiti's wealth of untapped mining resources must benefit the poor

The Guardian: More transparency and opportunities for public participation in mining deals is the best way to avoid resource curse

Commodity trading and illicit capital flows

CGDev: Commodities such as copper, gold, and oil are sold to traders in Switzerland at prices below the world market. The traders then re-sell these commodities at a steep mark-up. In most cases the goods never pass through Switzerland, nor are they processed in any way that would justify the mark-up. The traders and whomever they are in business with are thus able to reap massive profits, skimming off capital that would otherwise have gone to the original exporter. In our paper we use four methods that involve various means of comparing initial Swiss purchase price, the re-export price, and prevailing global prices. Our most conservative estimate is that developing countries lose at least $8 billion a year in illicit flows to Switzerland – more than twice the Swiss aid budget.

Tuesday, January 21, 2014

International Capital Markets, Oil Producers and the Green Paradox

New OxCarre WP: In partial equilibrium a rapidly rising carbon tax encourages oil producers to extract fossil fuels more quickly, giving rise to the Green Paradox. General equilibrium analysis for a closed economy shows that a rapidly rising carbon tax negatively affects the interest rate, which tends to weaken the Green Paradox. However, in a two-country world with an oil-importing and an oil-exporting region the Green Paradox may be amplified in general equilibrium if exporters are relatively patient. On the contrary, if oil exporters are relatively impatient, the Green Paradox might be reversed. Furthermore, general equilibrium effects tend to weaken the link between a capital asset tax and the time profile of resource extraction so that the capital asset tax becomes less useful as an instrument to offset the Green Paradox effect associated with the announcement of a future carbon tax. Taking exploration costs into account, we show that the effect of both policy instruments on cumulative extraction is of opposite sign as the effect on
current extraction. Moreover, if the change in current extraction is amplified or reversed in general equilibrium, so will be the change in cumulative extraction.

Monday, January 20, 2014

The Wild West is Wild: The Homicide Resource Curse

New Working Paper: We uncover interpersonal violence as a dimension and a mechanism of the resource curse. We rely on a historical natural experiment in the United States, in which mineral discoveries occurred at various stages of governmental territorial expansion. \Early" mineral discoveries, before full-edge rule of law is in place in a county, are associated with higher levels of inter-personal violence, historically and today. The persistence of this homicide resource curse is partly explained by the low quality of -subsequent- judicial
institutions. The speci city of our results to violent crime also suggests that a private order of property rights did emerge on the frontier, but that it was enforced by high levels of interpersonal violence. The results are robust to state-speci c e ects, to comparing only neighboring counties, and to comparing only discoveries within short time intervals.

Friday, January 17, 2014

Dude, where's my North Sea oil money?

The Guardian: For a few years, the UK enjoyed a once-in-a-lifetime windfall – only, unlike the Norwegians, we've got almost nothing to show for it.

Thursday, January 16, 2014

Business Lobby Goes to Court to Stop ‘Conflict Minerals’ Rule

Foreign Policy: A years-long effort to make U.S. companies disclose the use of minerals from war-torn African countries could finally go into effect this year. That is, unless business groups like the Chamber of Commerce that are opposed to the requirement can get a court to toss it out...

'Rock stars don't need oil,' Neil Young says

CNN:  Young, who was inducted into the Rock and Roll Hall of Fame in 1995, began a four-stop concert tour this week to support the efforts of First Nations indigenous groups to stop the mining of the oil sands, a process in which the heavy crude is extracted from the sand, minerals and water with which it is mixed. Young says the mining damages the environment and the Canadian government is not honoring treaty obligations with First Nations groups in allowing it, according to CBC News reports.The government says the mining benefits Canada's economy and standard of living...

Wednesday, January 15, 2014

Property Rights, Oil and Income Levels: Over a Century of Evidence

New WP: We investigate the e¤ects of di¤erent regimes of control rights over oil exploitation on aggregate domestic income. We construct a new panel dataset on petroleum ownership structures for up to 68 countries between 1867-2008, distinguishing among regimes of Domestic Control, Foreign Control, and international Partnerships. Results show that Partnerships tend to generate higher domestic income than Foreign and Domestic Control. This result is robust to controlling for political regimes (i.e. democracy, anocracy, autocracy), time e¤ects, and other factors. Existing theories of incomplete contracts capture several aspects, but not the general mechanism underlying the relationships between aggregate domestic income and control regimes in primary sectors.

Monday, January 13, 2014

The natural resource lever looks better when there isn't much to move

Tim Stuhldreher: A little natural resource boom can do wonders for your economy, at least in the short term, provided you have a small population and not much other economic activity...

Friday, January 10, 2014

Niger uranium mining dispute a test case for use of African natural resources

The Guardian: The wrangle between Niger and a state-owned French firm over payments for uranium extraction has wider ramifications

Thursday, January 9, 2014

Public capital in resource rich economies: is there a curse?

Bhattacharyya and Collier in Oxford Economic Papers: As poor countries deplete their natural resources, for increased consumption to be sustainable some of the revenues should be invested in other public assets. Further, since such countries typically have acute shortages of public capital, the finance from resource depletion is an opportunity for needed public investment. Using a new global panel dataset on public capital and resource rents covering the period 1970 to 2005 we find that, contrary to these expectations, resource rents significantly reduce the public capital stock. This is more direct evidence for a policy-based ‘resource curse’ than the conventional, indirect evidence from the relationships between resource endowments, growth and income. The adverse effect on public capital is mitigated by good institutions. We also find that rents from the depletion of non-renewable (mineral) resources reduce the public capital stock whereas rents from sustainable (forestry and agriculture) sources do not.

Tuesday, January 7, 2014

Brazil’s oil euphoria hits reality hard

Washington Post: When fields said to hold billions of barrels of oil were discovered off the coast here, exuberant government officials said the deep-sea prize would turn Brazil into a major energy player. More than six years later, the outlook for Brazil’s oil industry, much like the Brazilian economy itself, is more sobering. Oil production is stagnant, the state-controlled oil company, Petrobras, is hobbled by debt, and foreign oil companies are wary of investing here...

Monday, January 6, 2014

Natural resource curse: a non linear approach in a panel of oil exporting countries

MPRA: This paper explores the idea of regime switching as a new methodological approach to bring new insights into the natural resource curse hypothesis in the case of oil exporting countries. The basic idea is that when a threshold of oil dependence is passed, the relationship between economic growth and its determinants could move smoothly from a regime to another. Relying upon the estimation of a PSTR model, our findings offer strong evidence that oil revenues non-linearly impacts economic growth and that resource curse only exists under the condition of high oil dependence. More precisely, below the level of 51% of oil dependence, oil revenues have a positive impact on economic growth, whereas above this level, it have serious drawbacks on economic growth through inefficiencies into the quality and the quantity of government expenditures.

Friday, January 3, 2014

Conflict and Coexistence in the Extractive Industries

Chatham House: Clashes over the terms of mineral contracts have become a political lightning rod in many resource-rich countries. A series of bitter disputes in recent years – some ending in lengthy litigation, project cancellation or even expropriation – has unsettled investors and global markets. These disputes call attention to the fragile and complex relationship between companies and their host governments that characterizes the extractives sector...