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Public Investment in Resource-Abundant Developing Countries
Author:
Mr. Andrew Berg
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Mr. Rafael A Portillo
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Ms. Susan S. Yang
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Luis-Felipe Zanna
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Series:
IMF Working Papers
Volume/Issue:
Volume 2012: Issue 274
Language:
English
Publication Date:
15 Nov 2012
DOI:
https://doi.org/10.5089/9781475535563.001
ISBN:
9781475535563
ISSN:
1018-5941
Pages:
48
Keywords:
WP; natural resource; depreciation rate; public investment; resource-rich developing countries; DSGE models; investment efficiency; investing approach; stabilization fund; resource revenue; investment path; investment project; adjustment cost; investment scaling-up; investment spending; Public investment spending; Consumption taxes; Consumption; Private consumption; Sub-Saharan Africa
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Natural resource revenues provide a valuable source to finance public investment in developing countries, which frequently face borrowing constraints and tax revenue mobilization problems. This paper develops a dynamic stochastic small open economy model to analyze the macroeconomic effects of investing natural resource revenues, making explicit the role of pervasive features in these countries including public investment inefficiency, absorptive capacity constraints, Dutch disease, and financing needs to sustain capital. Revenue exhaustibility raises medium-term issues of how to sustain capital built during a windfall, while revenue volatility raises short-term concerns about macroeconomic instability. Using the model, country applications show how combining public investment with a resource fund---a sustainable investing approach---can help address the macroeconomic problems associated with both exhaustibility and volatility. The applications also demonstrate how the model can be used to determine the appropriate magnitude of the investment scaling-up (accounting for the financing needs to sustain capital) and the adequate size of a stabilization fund (buffer).
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2012: Issue 274