Containing Volatility : Windfall Revenues for Resource-Rich Low-Income Countries
An abundance of natural resources is both an opportunity and a challenge for developing countries. Several resource-rich, low-income countries receive amounts of foreign aid that are similar to or larger than their actual or potential revenues from...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2014/06/19746806/containing-volatility-windfall-revenues-resource-rich-low-income-countries http://hdl.handle.net/10986/19370 |
| Summary: | An abundance of natural resources is
both an opportunity and a challenge for developing
countries. Several resource-rich, low-income countries
receive amounts of foreign aid that are similar to or larger
than their actual or potential revenues from natural
resources. In such countries, the donors may have an
opportunity to help a government to use its resource
revenues productively and minimize the magnitude of risks
created by resource rents. Development of aid instruments
tailored for such purposes might be helped by model-based
analysis of the effects of foreign aid on resource-rich,
low-income economies and its interactions with the flows of
natural resource revenues. This paper develops a growth
model a la Barro in which the government receives windfalls
(from natural resources and foreign aid) and rent-seeking
agents contest for public funds. The key conclusion is that
making aid countercyclical helps to achieve higher economic
growth, and so does conditioning disbursements on
enhancement of public capital. Introducing elements of
insurance in the design of both aid products financing
investments in infrastructure and social services and
supporting policy and institutional reforms may help to
achieve both of these objectives. |
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