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Why do many resource-rich countries have negative genuine saving?: Anticipation of better times or rapacious rent seeking

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  • van der Ploeg, Frederick

Abstract

We investigate the Hartwick rule for saving of a nation necessary to sustain a constant level of private consumption for a small open economy with an exhaustible stock of natural resources. The amount by which a country saves and invests less than the marginal resource rents equals the expected capital gains on reserves of natural resources plus the expected increase in interest income on net foreign assets plus the expected fall in the cost of resource extraction due to expected improvements in extraction technology. Effectively, depletion is then postponed until better times. This suggests that it is not necessarily sub-optimal for resource-rich countries to have negative genuine saving. However, in countries with different groups with imperfectly defined property rights on natural resources, political distortions induce faster resource depletion than suggested by the Hotelling rule. Fractionalised societies with imperfect property rights build up more foreign assets than their marginal resource rents, but in the long run accumulate less foreign assets than homogenous societies. Hence, such societies end up with lower sustainable consumption and are worse off, especially if seepage is strong, the number of rival groups is large and the country does not enjoy much monopoly power on the resource market. Genuine saving is zero in such societies. However, World Bank genuine saving figures based on market rather than accounting prices will be negative, albeit less so in more fractionalised societies with less secure property rights.

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Bibliographic Info

Article provided by Elsevier in its journal Resource and Energy Economics.

Volume (Year): 32 (2010)
Issue (Month): 1 (January)
Pages: 28-44

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Handle: RePEc:eee:resene:v:32:y:2010:i:1:p:28-44

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Web page: http://www.elsevier.com/locate/inca/505569

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Keywords: Exhaustible resources Hotelling rule Hartwick rule Accounting price Genuine saving Capital Sustainable consumption Extraction technology Common pool Seepage Property rights Voracity Fractionalisation Sovereign wealth fund;

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References

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Cited by:
  1. Massimiliano Mazzanti & Roberto Zoboli, 2012. "A Political Economy Approach to Resource Taxation: Weak Sustainability, Revenue Recycling and Regional Planning," Working Papers 201202, University of Ferrara, Department of Economics.
  2. Hamilton, Kirk & Atkinson, Giles, 2013. "Resource discoveries, learning, and national income accounting," Policy Research Working Paper Series 6505, The World Bank.
  3. repec:laf:wpaper:201201 is not listed on IDEAS
  4. Frederick Ploeg, 2012. "Bottlenecks in ramping up public investment," International Tax and Public Finance, Springer, vol. 19(4), pages 509-538, August.
  5. Louis Dupuy, 2012. "International Trade and Sustainability : A survey," Working Papers hal-00701426, HAL.
  6. Géraldine THIRY, 2011. "Beyond Gdp: Conceptual Grounds of Quantification. The Case of the Index of Economic Well-Being (IEWB)," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2011048, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  7. Kirk Hamilton & Giles Atkinson, 2013. "Resource Discoveries, Learning and National Income Accounting," Grantham Research Institute on Climate Change and the Environment Working Papers 117, Grantham Research Institute on Climate Change and the Environment.
  8. Geraldine THIRY & Isabelle CASSIERS, 2010. "Alternative Indicators to GDP: Values behind Numbers. Adjusted Net Savings in Question," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2010018, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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