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...
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| Format: | Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2017
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| 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 |
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okr-10986-258092021-06-08T14:42:46Z Optimal Allocation of Natural Resource Surpluses in a Dynamic Macroeconomic Framework : A DSGE Analysis with Evidence from Uganda Zeufack, Albert Kopoin, Alexandre Nganou, Jean-Pascal Tchana Tchana, Fulbert Kemoe, Laurent public investment fiscal policy resource-rich volatility resource allocation Dutch Disease general equilibrium model resource windfalls sovereign wealth fund oil price volatility macroeconomic policy 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. 2017-01-05T15:44:58Z 2017-01-05T15:44:58Z 2016-12 Working Paper 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 English en_US Policy Research Working Paper;No. 7910 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Africa Uganda |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
public investment fiscal policy resource-rich volatility resource allocation Dutch Disease general equilibrium model resource windfalls sovereign wealth fund oil price volatility macroeconomic policy |
| spellingShingle |
public investment fiscal policy resource-rich volatility resource allocation Dutch Disease general equilibrium model resource windfalls sovereign wealth fund oil price volatility macroeconomic policy Zeufack, Albert Kopoin, Alexandre Nganou, Jean-Pascal Tchana Tchana, Fulbert Kemoe, Laurent Optimal Allocation of Natural Resource Surpluses in a Dynamic Macroeconomic Framework : A DSGE Analysis with Evidence from Uganda |
| geographic_facet |
Africa Uganda |
| relation |
Policy Research Working Paper;No. 7910 |
| description |
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. |
| format |
Working Paper |
| author |
Zeufack, Albert Kopoin, Alexandre Nganou, Jean-Pascal Tchana Tchana, Fulbert Kemoe, Laurent |
| author_facet |
Zeufack, Albert Kopoin, Alexandre Nganou, Jean-Pascal Tchana Tchana, Fulbert Kemoe, Laurent |
| author_sort |
Zeufack, Albert |
| title |
Optimal Allocation of Natural Resource Surpluses in a Dynamic Macroeconomic Framework : A DSGE Analysis with Evidence from Uganda |
| title_short |
Optimal Allocation of Natural Resource Surpluses in a Dynamic Macroeconomic Framework : A DSGE Analysis with Evidence from Uganda |
| title_full |
Optimal Allocation of Natural Resource Surpluses in a Dynamic Macroeconomic Framework : A DSGE Analysis with Evidence from Uganda |
| title_fullStr |
Optimal Allocation of Natural Resource Surpluses in a Dynamic Macroeconomic Framework : A DSGE Analysis with Evidence from Uganda |
| title_full_unstemmed |
Optimal Allocation of Natural Resource Surpluses in a Dynamic Macroeconomic Framework : A DSGE Analysis with Evidence from Uganda |
| title_sort |
optimal allocation of natural resource surpluses in a dynamic macroeconomic framework : a dsge analysis with evidence from uganda |
| publisher |
World Bank, Washington, DC |
| publishDate |
2017 |
| url |
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 |
| _version_ |
1764460204668223488 |