Optimal Allocation of Natural Resource Surpluses in a Dynamic Macroeconomic Framework : A DSGE Analysis with Evidence from Uganda
In low-income, capital-scarce economies that face financial and fiscal constraints, managing revenues from newly found natural resources can be a daunting challenge. The policy debate is how to scale up public investment to meet huge needs in infra...
| Main Authors: | , , , , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2017
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/775461481290732787/Optimal-allocation-of-natural-resource-surpluses-in-a-dynamic-macroeconomic-framework-a-DSGE-analysis-with-evidence-from-Uganda http://hdl.handle.net/10986/25809 |
| Summary: | In low-income, capital-scarce economies
that face financial and fiscal constraints, managing
revenues from newly found natural resources can be a
daunting challenge. The policy debate is how to scale up
public investment to meet huge needs in infrastructure
without generating a higher public deficit, and avoid the
Dutch disease. This paper uses an open economy dynamic
stochastic general equilibrium model that is compatible with
low-income economies and calibrated on Ugandan's data
to tackle this problem. The paper explores macroeconomic
dynamics under three stylized fiscal policy approaches for
managing resource windfalls: investing all in public
capital, saving all in a sovereign wealth fund, and a
sustainable-investing approach that proposes a constant
share of resource revenues to finance public investment and
the rest to be saved. The analysis finds that a gradual
scaling-up of public investment yields the best outcome, as
it minimizes macroeconomic volatility. The analysis then
investigates the optimal oil share to use for public
investment; the criterion minimizes a loss function that
accounts for households' welfare and macroeconomic
stability in an environment featuring oil price volatility.
The findings show that, depending on the policy maker's
preference for stability, 55 to 85 percent of oil windfalls
should be invested. |
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