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Oil Exporters’ Dilemma: How Much to Save and How Much to Invest

  • Cherif, Reda
  • Hasanov, Fuad

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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Article provided by Elsevier in its journal World Development.

Volume (Year): 52 (2013)
Issue (Month): C ()
Pages: 120-131

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Handle: RePEc:eee:wdevel:v:52:y:2013:i:c:p:120-131
Contact details of provider: Web page: http://www.elsevier.com/locate/worlddev

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  1. Paul Collier & Rick Van Der Ploeg & Michael Spence & Anthony J Venables, 2010. "Managing Resource Revenues in Developing Economies," IMF Staff Papers, Palgrave Macmillan, vol. 57(1), pages 84-118, April.
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