Genuine Saving and the Voracity Effect
AbstractMany resource-rich countries have poor economic performance and suffer from negative genuine saving rates, especially if they have many rival factions and badly functioning legal systems. We attempt to shed light on these stylized facts by analyzing a power struggle about the control of natural resources where competing factions in society have a private stock of financial assets and a common stock of natural resources. We solve a dynamic common-pool problem and obtain political economy variants of the Hotelling rule for resource depletion and the Hartwick saving rule necessary to sustain constant consumption in an economy with exhaustible natural resources. The rate of increase in the price of natural resources and resource depletion are faster than demanded by the Hotelling rule. As a result, the country substitutes away from resources to capital so that it saves and invests more than a homogenous society. The power struggle boosts output. Nevertheless, fractionalization depresses aggregate consumption and social welfare and leads to negative genuine saving if properly corrected for common-pool externalities. Fractionalization induces, however, positive genuine saving as measured by the World Bank.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6831.
Date of creation: May 2008
Date of revision:
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Other versions of this item:
- E20 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- O13 - Economic Development, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
- Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
- Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-05-31 (All new papers)
- NEP-DEV-2008-05-31 (Development)
- NEP-ENV-2008-05-31 (Environmental Economics)
- NEP-MAC-2008-05-31 (Macroeconomics)
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