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Oil Exporters' Dilemma

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Author Info

  • Reda Cherif
  • Fuad Hasanov

Abstract

Policymakers in oil-exporting countries confront the question of how to allocate oil revenues among consumption, saving, and investment in the face of high income volatility. We study this allocation problem in a precautionary saving and investment model under uncertainty. Consistent with data in the 2000s, precautionary saving is sizable and the marginal propensity to consume out of permanent shocks is below one, in stark contrast to the predictions of the perfect foresight model. The optimal investment rate is high if productivity in the tradable sector is high enough.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/4.

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Length: 22
Date of creation: 01 Jan 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/4

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Keywords: Financial sector; Oil exporting countries; Oil revenues; Public investment; Resource allocation; Savings;

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References

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  1. Borensztein, Eduardo & Jeanne, Olivier & Sandri, Damiano, 2009. "Macro-Hedging for Commodity Exporters," CEPR Discussion Papers 7513, C.E.P.R. Discussion Papers.
  2. Carroll, Christopher D., 2009. "Precautionary saving and the marginal propensity to consume out of permanent income," Journal of Monetary Economics, Elsevier, vol. 56(6), pages 780-790, September.
  3. Elif C. Arbatli, 2008. "Futures Markets, Oil Prices and the Intertemporal Approach to the Current Account," Working Papers 08-48, Bank of Canada.
  4. Cavalcanti, T.V.de V. & Mohaddes, K. & Raissi, M., 2011. "Commodity Price Volatility and the Sources of Growth," Cambridge Working Papers in Economics 1112, Faculty of Economics, University of Cambridge.
  5. Christopher D. Carroll, 2001. "A Theory of the Consumption Function, With and Without Liquidity Constraints (Expanded Version)," NBER Working Papers 8387, National Bureau of Economic Research, Inc.
  6. Paul Collier & Frederick van der Ploeg & Michael Spence & Anthony J Venables, 2009. "Managing Resource Revenues in Developing Economies," OxCarre Working Papers 015, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  7. Rudolfs Bems & Irineu E. Carvalho Filho, 2009. "Current Account and Precautionary Savings for Exporters of Exhaustible Resources," IMF Working Papers 09/33, International Monetary Fund.
  8. Alun H. Thomas & Jun Il Kim & Aqib Aslam, 2008. "Equilibrium Non-Oil Current Account Assessments for Oil Producing Countries," IMF Working Papers 08/198, International Monetary Fund.
  9. H. Takizawa & E. H. Gardner & Kenichi Ueda, 2004. "Are Developing Countries Better off Spending their Oil Wealth Upfront?," IMF Working Papers 04/141, International Monetary Fund.
  10. Cherif, Reda & Hasanov, Fuad, 2011. "The volatility trap: why do big savers invest relatively little?," MPRA Paper 31286, University Library of Munich, Germany.
  11. Damiano Sandri, 2011. "Precautionary Savings and Global Imbalances in World General Equilibrium," IMF Working Papers 11/122, International Monetary Fund.
  12. Douglas Dacy & Fuad Hasanov, 2011. "A Finance Approach To Estimating Consumption Parameters," Economic Inquiry, Western Economic Association International, vol. 49(1), pages 122-154, 01.
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Citations

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Cited by:
  1. Juliana Dutra Araujo & Grace Bin Li & Marcos Poplawski-Ribeiro & Luis-Felipe Zanna, 2013. "Current Account Norms in Natural Resource Rich and Capital Scarce Economies," IMF Working Papers 13/80, International Monetary Fund.
  2. Jean-Pierre Allegret & Cécile Couharde & Dramane Coulibaly & Valérie Mignon, 2013. "Current accounts and oil price fluctuations in oil-exporting countries: the role of financial development," EconomiX Working Papers 2013-29, University of Paris West - Nanterre la Défense, EconomiX.
  3. Carlos Caceres & Serhan Cevik & Ricardo Fenochietto & Borja Gracia, 2013. "The Day After Tomorrow," IMF Working Papers 13/79, International Monetary Fund.
  4. Elisabeth Beusch & Barbara Döbeli & Andreas M. Fischer & Pinar Yesin, 2013. "Merchanting and Current Account Balances," Working Papers 2013-06, Swiss National Bank.
  5. Reda Cherif & Fuad Hasanov, 2012. "The Volatility Trap," IMF Working Papers 12/134, International Monetary Fund.
  6. Ahmadov, Ingilab & Mammadov, Jeyhun & Aslanli, Kenan, 2013. "Assessment of Institutional Quality in Resource-Rich Caspian Basin Countries," MPRA Paper 47430, University Library of Munich, Germany.
  7. Christine J. Richmond & Irene Yackovlev & Shu-Chun S. Yang, 2013. "Investing Volatile Oil Revenues in Capital-Scarce Economies," IMF Working Papers 13/147, International Monetary Fund.
  8. Cherif, Reda & Hasanov, Fuad, 2011. "The volatility trap: why do big savers invest relatively little?," MPRA Paper 31286, University Library of Munich, Germany.

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