Thursday, July 29, 2010

"Resource Rents; When to Spend and How to Save"

Professor Tony Venables (Oxford) is a world renowned trade economist with previous papers and books that are scattered liberally throughout my PhD and trade papers. He led the "new economic geography" revolution alongside Paul Krugman back in the early 1990s.

He has now seen the "green" light and is working on environmental issues. His career therefore mirrors my own albeit at a much higher academic level :-(

I still object to the CEPR $5 a shot money making machine for working papers. Outdated and frustrating for those economists for whom the cost is prohibitive (PhD students, academics in developing countries etc.) Seems to me to be against the spirit of academia and dissemination of ideas and results.

"Resource Rents; When to Spend and How to Save"

CEPR Discussion Paper No. DP7875
ANTHONY J. VENABLES, University of Oxford - Department of Economics, Centre for Economic Policy Research (CEPR)

Countries with substantial revenues from renewable resources face a complex range of revenue management issues. What is the optimal time profile of consumption from the revenue, and how much should be saved? Should saving be invested in foreign funds or in the domestic economy? How does government policy influence the private sector, where sustainable growth in the domestic economy must ultimately be generated? This paper develops the issues in a simple two-period model, and argues that analysis must go well beyond the simple permanent income approach sometimes recommended. In developing countries resource revenues relax constraints on the supplies of capital and of government funds. The level of saving should be somewhat lower than under the permanent income hypothesis because of the low income of the current generation. The composition of investment should be tilted to the domestic economy rather than foreign assets. Government prudence can be undermined by private sector expectations, so high levels of spending on public infrastructure may be appropriate as a commitment to invest.


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