Monetary Policy in Resource-Rich Developing Economies

New CERGE-EI WP:  The economic literature acknowledges that to avoid the resource curse, resource-rich countries should restrict fi…scal expansion and save a signifi…cant part of resource revenues outside the domestic economy. However, in these countries governments tend to ineffectively spend a considerable part of windfall revenues in the short run. In this research I construct a DSGE model for a small, open economy to show that if …scal indiscipline in the form of immediate responses to foreign resource revenue changes is inevitable, then monetary policy can help improve the allocation problem. The simulation results indicate that targeting the exchange rate or price level through foreign exchange interventions by the central bank can soften the negative effects of Dutch Disease and stabilize the economy in the face of volatile natural resource revenues in the short run. I also …nd that a …fixed exchange rate regime outperforms price level targeting by delivering higher isolation and hence less vulnerability to shocks in natural resource revenues. In contrast, if the central bank chooses to pursue a laissez faire policy, i.e., not to intervene, then the economy becomes vulnerable to shocks in foreign resource revenues and the resource curse becomes more severe.

Direct Distribution of Oil Revenues in Venezuela: A Viable Alternative?

New CGDev WP:  Venezuela is a textbook example of a resource-dependent country—between 1950 and 2008, oil generated over a trillion dollars of income for the state. Nevertheless, Venezuela currently combines an economy that is stagnant, despite high oil prices, with an increasingly authoritarian government. The authors argue that large oil rents that accrue to the state, together with a lack of formal and transparent mechanisms to facilitate citizen oversight, are a large part of the problem. They consider the nature of the fiscal contract between the Venezuelan government and its people. This has been characterized by increasing discretion of the executive; only a small share of the rents is now subject to political oversight within the framework of the budgetary system. The authors consider the case for direct distribution of rents, distinguishing it from a populist approach to transfers as effected through Venezuela’s misiones. They also report on focus group discussions of the direct distribution approach and the political viability of direct transfers.

Arctic Resources, Exposed by Warming, Set Off Competition

New York Times: At stake are the Arctic’s abundant supplies of oil, gas and minerals that are, thanks to climate change, becoming newly accessible along with increasingly navigable polar shipping shortcuts...

Poverty in the midst of abundance

Daniel Kaufmann writes on Trustlaw: In 1990, almost 600 million people lived on less than $5 a day in resource-rich countries. Today, it is estimated that poverty has increased to about 700 million people. Among this population, close to 300 million live in dire poverty, surviving on $2 a day or less. The majority of the poor in resource-rich countries live in Africa, where 80 percent of citizens in extractive-intensive countries live on under $5 a day, and over 50 percent live on under $2 a day.
In many countries the failure to harness natural resource wealth towards national well-being is in large measure linked to a failure of national governance. Of the hundreds of millions of citizens living on under $2 a day in resource-rich nations, 85 percent live in very poorly governed countries – countries which, according to the updated Worldwide Governance Indicators (WGI), rate very poorly in corruption control and other governance dimensions...

The End of Global Warming

Noah Smith writes in The Atlantic: Here is the good news. US carbon emissions are decreasing rapidly. We're down over 10% from our emissions peak in 2007. Furthermore, the drop isn't just a function of the Great Recession. Since 2010 our economy has been growing, but emissions have kept on falling. The reason? Natural gas. With the advent of "fracking" technology, the price of gas has plummeted far below that of coal, and as a result, essentially no new coal plants are being built. Although gas does release carbon, it only releases about half as much as coal for the same amount of electricity. This is why -- despite our failure to join the Kyoto Protocol or impose legal restrictions on CO2 -- the United States is now outpacing the rest of the developed world in reducing our contribution to global warming...

Government Spending, Subsidies and Economic Efficiency in the Gulf countries

New OxCarre paper:  Public investment and subsidies are typically inefficient but in the GCC these are crucial engines of growth. Subsidies are also used to redistribute oil windfalls in the region, and the problem of a government that wants to „distribute‟ oil money is a problem fully symmetric to the one analyzed by Ramsey (1927) of optimal taxation. The second-best policy (when lump-sum transfers are not available) is to use subsidies across a wide range of goods (as opposed to the focus on energy chosen by the GCC). In addition, the „inverse‟ Ramsey model implies that commodities for which demand is least elastic to prices should be subsidized at higher rates. This suggests subsidizing basic needs at higher rates, in particular food, healthcare and education. In addition, when subsidies are very large, they create additional distortions because households prefer to queue for subsidies (e.g. public service jobs, subsidized mortgages in Saudi Arabia) rather than participate in private markets. As an example, we draw a model where recruitment of public servants can induce a large disincentive to take private sector positions and compute the conditions under which the disincentive is so strong that overall employment is actually decreased as public servants are being hired.

Ex-Elf boss extradited to Togo in fraud probe

BBC reports:  Former French oil chief executive Loik Le Floch-Prigent has been extradited from Ivory Coast to Togo on suspicion of involvement in a massive fraud... The 68-year-old was detained on Saturday as part of an investigation into a complaint from a businessman who alleged that he was victim of a $48m (£30m) fraud scheme, according to AFP news agency... Mr Le Floch-Prigent has served a five-year sentence for embezzling more that $350m of public funds during his reign at Elf. He currently works as an oil industry consultant, reports say.