Assessing the Effects of Natural Resources on Long-Term Growth : An Extension of the World Bank Long Term Growth Model
This paper extends the World Bank's Long-Term Growth Model (LTGM) with the addition of a natural resource sector to analyze how long-run growth evolves in resource-rich countries and the growth impacts of price shocks and resource discoveries....
| Main Authors: | , , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
Washington, DC: World Bank
2022
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/584811647268984881/Assessing-the-Effects-of-Natural-Resources-on-Long-Term-Growth-An-Extension-of-the-World-Bank-Long-Term-Growth-Model http://hdl.handle.net/10986/37162 |
| Summary: | This paper extends the World
Bank's Long-Term Growth Model (LTGM) with the addition
of a natural resource sector to analyze how long-run growth
evolves in resource-rich countries and the growth impacts of
price shocks and resource discoveries. In the LTGM-Natural
Resource Extension (LTGM-NR), commodity price shocks affect
long-term economic growth through physical investment rates.
As a large share of resource income typically accrues to the
government, the size of the boost to investment in a price
boom depends on the government’s fiscal rule. Fiscal rules
that prioritize public investment, like a Hartwick Rule,
generally lead to the largest increases in long-term growth.
However, structural surplus rules, which save commodity
revenues, can also boost growth if they free up savings for
private investment. The response of growth to discoveries of
natural resources is similar to the response to price
shocks, although discoveries also produce a direct effect on
real GDP, in addition to an indirect effect through
investment. The LTGM¬-NR also captures the effect of other
(non-resource) growth fundamentals in resource-rich
economies, and it is better suited to general growth
analysis in these countries than the standard LTGM. However,
the LTGM-NR is a supply-side model, and so does not capture
the short-run effects of price and discovery shocks that
operate through aggregate demand. |
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