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Management of oil windfalls in Mexico : historical experience and policy options for the future

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Author Info
Everhart, Stephen
Duval-Hernandez, Robert

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Abstract

The macroeconomic impact of commodity windfalls has provided fertile ground for research since the 1970s. Particularly affected are developing countries that rely heavily on commodity exports. in the case of oil windfalls, cross-country experience is vast: Indonesia, Kazakhstan, Mexico, Nigeria, the Russian Federation, and Republica Bolivariana de Venezuela have all been buffered by such windfalls. The authors investigate Mexico's experience. They provide an overview of oil's impact on the Mexican economy and of the management of oil rents engineered by the government from the 1970s to date. A third of government revenues come from the hydrocarbon sector--especially oil exports. The reliance of public finance on a single commodity means that shocks threaten the economy's fiscal balance and stability. Policy options for protecting the economy from volatility in oil revenues without eliminating the benefits from rising prices include a stabilization fund and hedging strategies on international markets, which the authors discuss. The stabilization fund smoooths consumption and reduces the costs associated volatile spending. The fund and hedging strategies can complement each other--the fund working as the main recipient of revenues, and the hedging strategies managing short-lived movements in prices. This joint strategy would also reduce the size of the fund and the probability of its going bankrupt.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2592.

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Date of creation: 30 Apr 2001
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Handle: RePEc:wbk:wbrwps:2592

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Keywords: Economic Theory&Research; Environmental Economics&Policies; Payment Systems&Infrastructure; Financial Intermediation; Labor Policies; Environmental Economics&Policies; Economic Theory&Research; Energy Demand; Oil Refining&Gas Industry; Energy and Environment;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Ricardo Hausmann, 1995. "Dealing with Negative Oil Shocks: The Venezuelan Experience in the Eighties," RES Working Papers 4010, Inter-American Development Bank, Research Department. [Downloadable!]
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  7. repec:fth:inadeb:307 is not listed on IDEAS
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    Other versions:
  12. Lazaros E. Molho, 1994. "Fiscal Adjustment in an Oil-Exporting Country: The Case of Indonesia," IMF Policy Discussion Papers 94/21, International Monetary Fund.
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Eifert, Benn & Gelb, Alan & Borje Tallroth, Nils, 2002. "The political economy of fiscal policy and economic management in oil exporting countries," Policy Research Working Paper Series 2899, The World Bank. [Downloadable!]
  2. Breisinger, Clemens & Diao, Xinshen, 2008. "Economic transformation in theory and practice: What are the messages for Africa?," IFPRI discussion papers 797, International Food Policy Research Institute (IFPRI). [Downloadable!]
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