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Public Investment in Resource-Abundant Developing Countries

Public Investment in Resource-Abundant Developing Countries by Andrew Berg
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Natural resource revenues provide a valuable source to finance public investment in developing countries, which frequently face borrowing constraints and tax revenue mobilization problems. This paper develops a dynamic stochastic small open economy model to analyze the macroeconomic effects of investing natural resource revenues, making explicit the role of pervasive features in these countries including public investment inefficiency, absorptive capacity constraints, Dutch disease, and financing needs to sustain capital. Revenue exhaustibility raises medium-term issues of how to sustain capital built during a windfall, while revenue volatility raises short-term concerns about macroeconomic instability. Using the model, country applications show how combining public investment with a resource fund---a sustainable investing approach---can help address the macroeconomic
problems associated with both exhaustibility and volatility. The applications also demonstrate how the model can be used to determine the appropriate magnitude of the investment scaling-up (accounting for the financing needs to sustain capital) and the adequate size of a stabilization fund (buffer).
International Monetary Fund; November 2012
48 pages; ISBN 9781475549829
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Title: Public Investment in Resource-Abundant Developing Countries
Author: Andrew Berg; Rafael Portillo; Shu-Chun S. Yang; Luis-Felipe Zanna
 
ISBNs
1475549822
9781475535563
9781475549829
9781475570519