Bems, Rudolf, and de Carvalho Filho, Irineu, 2008, “Current Account and Precautionary Savings for Exporters of Exhaustible Resources” (Draft IMF Working Paper).
Chudik, Alexander and Joannes Mongardini, 2007, “In Search of Equilibrium: Estimating Real Exchange Rates in sub Saharan African Countries,” IMF Working Paper 07/90, (Washington: International Monetary Fund).
Di Bella, Gabriel, Mark Lewis, and Aurelie Martin, 2007, “Assessing Competitiveness and Real Exchange Rate Misalignment in Low-Income Countries,” IMF Working Paper 07/201, (Washington: International Monetary Fund).
Hasan, Maher and Jemma Dridi, 2008, “The Impact of Oil-Related Income on the Equilibrium Real Exchange Rate in Syria,” IMF Working Paper 08/196, (Washington: International Monetary Fund).
International Monetary Fund, 2008, Kuwait: 2008 Article IV Consultation—Staff Report, Country Report 08/191, (Washington: International Monetary Fund).
Lee, Jaewoo, Gian Maria Milesi-Ferretti, Jonathan David Ostry, Alessandro Prati, and Luca Antonio Ricci, 2008, “Exchange Rate Assessments: CGER Methodologies,” IMF Occasional Paper No. 261, (Washington: International Monetary Fund).
Ricci, Luca Antonio, Gian Maria Milesi-Ferretti, and Jaewoo Lee, 2008, “Real Exchange Rate and Fundamentals: A Cross-Country Perspective,” IMF Working Paper 08/13, (Washington: International Monetary Fund, Washington).
I am grateful to Maher Hasan and Tahsin Saadi for their useful comments on an earlier draft, to Arthur Ribeiro da Silva for assistance with collecting data and preparing the charts, and Maria Orihuela-Quintanilla for her kind assistance in preparing the document.
Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
Li will be referred to as “labor” but can be thought of a composite of domestic production factors such as labor, local know how, land, even institutions etc.—as long as the composition and relative returns to such factors do not change.
For many oil producers production is indeed set by fiat in accordance with OPEC guidelines, although within capacity constraints implied by the availability of inputs such as sector-specific capital and know-how, and inherent physical characteristics of individual oil fields. The model therefore, cannot address issues related to optimizing the extraction path for a given level of reserves.
The length of each period could of course be quite long.
For example, in Kuwait 10 percent of all budget revenue (essentially all from oil sales) goes into a “Fund for Future generations,” and any remaining budget surplus is invested into another long-term savings fund.
A good case can perhaps be made that such utility should be a function of real per capita spending, assuming “democratic” values influence the government’s objective function. The present set up would then apply strictly only to zero population growth, but generalization to a growing population is straightforward.
In recent years, GCC countries have saved a large share of oil revenue, which if they were following fiscal rule (9) would indicate that they expect not to run out of oil soon, but at the same time are concerned that the expected value of future oil revenue may be lower than needed to sustain a desired level of real spending for the foreseeable future.
For many oil exporters there is anecdotal evidence that some oil purchased domestically at subsidized prices is smuggled abroad and sold at world market prices; many oil exporters also import some fuels (usually specialty refined products). However, especially for GCC countries such reexports and imports seem of minor importance and ruling them out should not unduly restrict the analysis.
Recent econometric studies do provide some evidence along these lines, e.g., for Kuwait a cointegrating relation between the real exchange rate, oil wealth, and government spending was found with the same signs (IMF 2008). Data problems have so far hampered attempts to test for the role of labor, productivity and subsidies.
Yet much lower than the change in the headline dollar-prices for a barrel of oil of percent during 2001–07, as the dollar-price of imports also went up—in part reflecting the boom in non-oil commodities (food) as well as the depreciation of the dollar—to which all GCC except Kuwait peg—against the currencies of other countries from which the GCC import, such as Europe.
The GCC have in recent years generally moved up the business climate/competitiveness rankings in global comparisons such as the World Bank’s Doing Business Report, or the World Economic Forum’s Global Competitiveness Report.
Implicitly assuming a discovery of new reserves in that period, allowing higher production without affecting production in the other period.
Defined by w1+L1=cM1+pN1cN1+Fp. Decomposing F = Ff + Fd where Fd is the government’s net accumulation of claims on the domestic private sector and Ff of claims on nonresidents, and similarly,
A special case of the more general CES utility function