New research: Resource revenue management and wealth neutrality in Norway

Klaus Mohn ([uis.no], University of Stavanger) writes on

Resource revenue management and wealth neutrality in Norway

Abstract:

An important idea behind the Norwegian oil fund mechanism and the fiscal spending rule is to protect the non-oil economy from the adverse effects of excessive spending of resource revenues over the Government budget. A critical assumption in this respect is that public sector saving is not being offset by private sector dissaving, which is at stake with the hypothesis of Ricardian equivalence. Based on a framework of co-integrating saving rates, this model provides an empirical test of the Ricardian equivalence hypothesis on Norwegian time series data. Although the model rejects the strong-form presence of Ricardian equivalence, results indicate that the Norwegian approach does not fully succeed in separating spending of resource revenues from the accrual of the same revenues.

Published in Energy Policy, Volume 96, September 2016, Pages 446–457, find here [sciencedirect.com]

New OxCARRE Research: Using Natural Resources for Development: Why Has It Proven So Difficult?

OxCARRE's Director Tony Venables writes on

Using Natural Resources for Development: Why Has It Proven So Difficult?

Forthcoming in the Journal of Economic Perspectives

Abstract

Developing economies have found it hard to use natural resource wealth to improve their economic performance. Utilising resource endowments is a multi-stage economic and political problem that requires private investment to discover and extract the resource, fiscal regimes to capture revenue, judicious spending and investment decisions, and policies to manage volatility and mitigate adverse impacts on the rest of the economy. Experience is mixed, with some successes (such as Botswana and Malaysia) and more failures. This paper reviews the challenges that are faced in successfully managing resource wealth, the evidence on country performance, and the reasons for disappointing results. 

Available from the OxCARRE website, here [pdf]

New Research on Australia's mining boom

David A. Fleming and Thomas G. Measham [csiro.au] from CSIRO in Canberra, Australia have a collection of published papers documenting the effects of the mining boom in Australia.

In Australian Journal of Agricultural and Resource Economics [wiley.com], with Dusan Paredes,
Understanding the resource curse (or blessing) across national and regional scales: Theory, empirical challenges and an application

The relationship between resource extraction activity and economic growth has been widely studied in the literature, and the resource curse hypotheses emerged as a theory to explain the effects of resource windfalls on national economies. However, within countries, resource booms and busts can have distinctive effects across local economies, as extractive regions face particular economic consequences unlikely to be observed in nonresource regions. Empirically, most studies analysing the resource curse have relied on cross-country models to estimate effects and inform policy; however, the use of regional – within-country – analysis has gained attention from scholars lately, promoted by two advantages: it avoids unobserved country heterogeneities confounding economic outcomes caused by resources and exploits the subnational quasi-natural experimental conditions generated by endowments. This paper contributes to the resource curse literature by discussing its theoretical causes across scale (regional vs. national effects) and highlighting the empirical challenges involved in the analysis of mining economic impacts across regions. We complement the discussions by econometrically modelling economic growth across nonmetropolitan substate regions of Australia during a period of resource windfalls, finding that in most cases, resources have been a blessing for local economies, although negative effects have also been experienced in parts of the country.

In Resources Policy [sciencedirect.com]

Local job multipliers of mining

The mining industry is capital intensive, and generally, direct labour employed is low compared to other industries. Considering this, when analysing local economic effects of mining it is important to observe local job multipliers that the industry generates in other sectors of the economy. In this study we use data from the recent Australian mining boom to estimate local job multipliers from mining, using econometric models and avoiding the rigidities and strong assumptions that input–output based models rely on. With census data and samples of Australian sub-state regions, our estimations show that local multipliers of mining are important for some local services sectors such as transport and rental and accommodation services, while local job spillovers into tradable goods sectors (manufacturing and agriculture) are statistically not significant. We also show how the magnitude of local multipliers varies nationwide from those of regions where operating mines are located.

In Australian Journal of Agricultural and Resource Economics [wiley.com]
Local economic impacts of an unconventional energy boom: the coal seam gas industry in Australia

Complementing the scarce economic literature about local impacts of energy extraction booms, this paper empirically investigates economic outcomes related to the new coal seam gas (CSG) industry located across southern Queensland. This Australian state has seen an unprecedented inflow of investments into the extraction of this previously unexploited unconventional natural gas over the last decade. We analyse census data to study income and employment effects associated with the CSG boom, exploiting the quasi-experimental conditions provided by CSG extraction areas (treatment regions) and regions without this development (control regions). Findings show that treatment regions have higher income growth than control areas during 2001–2011 for families residing locally and for individuals present on census night. Employment in the mining sector also shows higher growth as has non-mining employment in some areas. We include comparisons between CSG areas with no major mining history (the Surat basin) and CSG areas where mining was important before the CSG boom (the Bowen basin), to better understand boom effects in areas with different initial mining industry importance in their economies. Local job multipliers are also analysed for Surat basin CSG areas, where positive impacts (job spillovers) are restricted to construction and professional services jobs, while agricultural jobs have decreased.

In Australian Geographer [tandfonline.com],
Income inequality across Australian regions during the mining boom: 2001-11

As mining expands throughout the world, a growing body of literature is focusing on the relationship between mining and well-being in locations where resource extraction occurs. Although many topics such as employment and migration have been researched, the impacts of mining on income inequality have received less attention from scholars. Income inequality is a highly debated topic and the Gini coefficient (GC) one of the most popular indicators used to measure and discuss it. In this paper we estimate GCs for all sub-State regions of Australia and analyse their changes during the ‘mining boom decade’ (2001–11) across mining and non-mining regions. Our results show that, on average, income inequality increased by around 4.8 per cent in mining regions, compared to 8.7 per cent in the average non-mining region. However, the results also show important variation in changes of GC across mining regions, suggesting that the industry is likely to affect the distribution of local incomes in different ways. The method we propose to estimate GCs for regional areas and the results obtained across mining and non-mining regions provide important insights for future research and for regional policy makers, especially those concerned with the socio-economic impacts of industries such as mining across regions.

New research: The local economic impacts of resource abundance : what have we learned?

In the line with the reviews by Gamu, Le Billon and Spiegel, and Cust and Poelhekke [both oxcarre.blogspot.com],

Fernando M. Aragona, Punam Chuhan-Pole and Bryan Christopher Land of the World Bank present a new overview:

The local economic impacts of resource abundance : what have we learned?

Abstract:

What are the socioeconomic impacts of resource abundance? Are these effects different at the national and local levels? How could resource booms benefit (or harm) local communities? This paper reviews a vast literature examining these questions, with an emphasis on empirical works. First, the evidence and theoretical arguments behind the so-called resource curse, and other impacts at the country level, are reviewed. This cross-country literature highlights the importance of institutions. Then, a simple analytical framework is developed to understand how resource booms could impact local communities, and the available empirical evidence is examined. This emerging literature exploits within-country variation and is opening new ways to think about the relation between natural resources and economic development. The main message is that others factors, such as market mechanisms and local spillovers, are also relevant for understanding the impact of resource abundance. Finally, the paper discusses issues related to fiscal decentralization and provides ideas for future research.

available here [worldbank.org]

Sovereign investor models. A new report.

From the Harvard Kennedy School and Center for International Development at Harvard University, a new report has coming out by Khalid A. Alsweilem (The Belfer Center for Science and International Affairs Harvard Kennedy School), Angela Cummine (British Academy Post-doctoral Fellow University of Oxford), Malan Rietveld (Investec Investment Institute & The Center for International Development Harvard Kennedy School) and Katherine Tweedie (Investec Investment Institute).

Sovereign investor models: Institutions and policies for managing sovereign wealth

The primary aim of the report is to identify the leading practices among existing funds and establish an analytical framework for assessing the critical policy and institutional aspects that legislators, policymakers and practitioners need to consider in establishing a new SWF or reforming an existing one.

The authors credit the academic research and experts they've used to write report, which includes work from people at OxCARRE. 

OxCARRE Trip to Azerbaijan

From 20 to 24 February, Gerhard Tows, Thomas Nielsen (LSE) and Wessel Vermeulen joined a group of researchers and practitioners, many associated with the Centre for Euro-Asian studies at Reading University, for a workshop on "Sustainable development in resource rich countries" at Khazar University in Baku, Azerbaijan. The workshop was made possible through support of the British Council in Azerbaijan.

During the conference we discussed with students, professors, representatives of SOFAZ (The sovereign wealth fund of Azerbaijan) and SOCAR (the state energy company) on matters such as development of resources, governance, macroeconomic management and international linkages. The delegation from the UK was able to offer new and critical views on the current state of knowledge on how to manage resources in a country such as Azerbaijan, while our hosts were able to highlight how Azerbaijan is coping with the large increase of revenues in recent years and the current situation where revenues are expected to decline rapidly in line with the fall of the oil price. Additionally, it was an occasion to share research ideas and methods with the potential of future collaborations and joined-projects between researchers from universities in the UK and Azerbaijan.

The city of Baku is an almost surreal mixture of new property development, large and modern architectural structures, with a carefully renovated historic centre, whereas only a few kilometres out of the centre gives a picture on what is probably the situation of the large majority of the people of Baku and supposedly the rest of the country. A distinctively less wealthy part of town, around soviet-era structures, but an also more lively buzz on the streets and around small shops and teahouses.

In the short time we were in Baku, and given the time left after the main sessions we were able to taste a little from the new Baku and how people view the development of Azerbaijan as an important oil and gas supplier for Europe. There is proudness in this thought but also acknowledgement of the often inefficient ways the riches are used in domestic spending and investment, and disappointment in the way that critical views are under-appreciated. The government of Azerbaijan has a large responsibility to shoulder. We hope that with our visit to the country we have contributed positively, if only in a small way, in showing how it can find the best way of using its new found riches for the benefit of the entire population.

For more information on Azerbaijan and its natural resources, see the NRGI website, which offers plenty of new developments. For instance, the country risks being expelled from the EITI program soon after having severely cracked down on voices from civil society that had critical views of the government. A country report [nrgi.com] on Azerbaijan from RevenueWatch, now NRGI, gives a fairly good overview of the situation, including recommendations the country has received from various international organisations and independent institutions.

New OxCARRE research. New discussion papers from January

January has seen some new discussion papers submitted to the OxCARRE website.

Intergenerational Inequality Aversion, Growth and the Role of Damages: Occam's rule for the global carbon tax by Armon Rezai & Rick van der Ploeg


The Relationship Between Oil Price and Costs in the Oil and Gas Industry by Gerhard Toews & Alexander Naumov


News Shocks in Open Economies: Evidence from Giant Oil Discoveries by Rabah Arezki, Valerie A Ramey & Liugang Sheng


Seven Principles for Managing Resource Wealth by Sam Wills.


and finally a forthcoming paper

Dutch Disease and the Mitigation Effect of Migration: Evidence from Canadian Provinces, by Michel Beine, Serge Coulombe & Wessel Vermeulen

IMF Fin&Dev: Sharing the Wealth

In last month's IMF publication Finance and Development, IMF Economists Sanjeev Gupta [sanjeevguptadocs.com], Alex Segura-Ubiergo [repec.org], and Enrique Flores [imf.org] wrote a piece on

Sharing the wealth

Countries that enjoy a resource windfall should be prudent about distributing it all directly to their people. The experience of the success stories suggests that natural resource wealth management requires a commitment to three interrelated principles: fiscal transparency, a rules-based fiscal policy, and strong institutions for public financial management. Some suggest that governments should give up their resource revenue and distribute it directly to the population. There are some good arguments to support this view—and strong arguments against it. Direct distribution is not a silver bullet. 

The article is a general audience edition of a discussion paper of them: Direct Distribution of Resource Revenues: Worth Considering? [imf.org pdf]