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

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  • Cherif, Reda
  • Hasanov, Fuad

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.

Suggested Citation

  • Cherif, Reda & Hasanov, Fuad, 2013. "Oil Exporters’ Dilemma: How Much to Save and How Much to Invest," World Development, Elsevier, vol. 52(C), pages 120-131.
  • Handle: RePEc:eee:wdevel:v:52:y:2013:i:c:p:120-131
    DOI: 10.1016/j.worlddev.2013.06.006
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    Citations

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    Cited by:

    1. Reda Cherif & Fuad Hasanov, 2012. "The Volatility Trap; Precautionary Saving, Investment, and Aggregate Risk," IMF Working Papers 12/134, International Monetary Fund.
    2. Blaise Gnimassoun & Marc Joets & Tovonony Razafindrabe, 2016. "On the link between current account and oil price fluctuation in diversified economies: The case of Canada," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 2016-08, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    3. repec:eee:inteco:v:152:y:2017:i:c:p:63-78 is not listed on IDEAS
    4. Christine J. Richmond & Irene Yackovlev & Susan S. Yang, 2013. "Investing Volatile Oil Revenues in Capital-Scarce Economies; An Application to Angola," IMF Working Papers 13/147, International Monetary Fund.
    5. Allegret, Jean-Pierre & Couharde, Cécile & Coulibaly, Dramane & Mignon, Valérie, 2014. "Current accounts and oil price fluctuations in oil-exporting countries: The role of financial development," Journal of International Money and Finance, Elsevier, vol. 47(C), pages 185-201.
    6. repec:gam:jecomi:v:5:y:2017:i:2:p:19-:d:101264 is not listed on IDEAS
    7. repec:bla:worlde:v:40:y:2017:i:1:p:140-167 is not listed on IDEAS
    8. Carlos Caceres & Serhan Cevik & Ricardo Fenochietto & Borja Gracia, 2015. "The Day After Tomorrow: Designing an Optimal Fiscal Strategy for Libya," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 2(4), pages 32-50, July.
    9. Samuel Wills, 2015. "Seven Principles for Managing Resource Wealth," Economics Series Working Papers OxCarre Research Paper 15, University of Oxford, Department of Economics.
    10. Elisabeth Beusch & Barbara Döbeli & Andreas M. Fischer & Pinar Yeşin, 2017. "Merchanting and Current Account Balances," The World Economy, Wiley Blackwell, vol. 40(1), pages 140-167, January.
    11. Reda Cherif & Fuad Hasanov, 2014. "Soaring of the Gulf Falcons; Diversification in the GCC Oil Exporters in Seven Propositions," IMF Working Papers 14/177, International Monetary Fund.
    12. 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.
    13. Araujo, Juliana D. & Li, Bin Grace & Poplawski-Ribeiro, Marcos & Zanna, Luis-Felipe, 2016. "Current account norms in natural resource rich and capital scarce economies," Journal of Development Economics, Elsevier, vol. 120(C), pages 144-156.
    14. Ansari, Dawud, 2016. "Resource curse contagion in the case of Yemen," Resources Policy, Elsevier, vol. 49(C), pages 444-454.
    15. Cherif, Reda & Hasanov, Fuad, 2011. "The volatility trap: why do big savers invest relatively little?," MPRA Paper 31286, University Library of Munich, Germany.
    16. Jeyhun Mammadov & Assoc. Prof. Dr. Jeyhun Mammadov & Prof. Dr. Ingilab Ahmadov & PhD candidate, Kenan Aslanli, 2013. "Assessment of Institutional Quality in Resource Rich Caspian Basin Countries," International Conference on Energy, Regional Integration and Socio-economic Development 5994, EcoMod.
    17. Samuel Wills, 2015. "Seven Principles for Managing Resource Wealth," OxCarre Working Papers 154, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    18. Tidiane Kinda & Montfort Mlachila & Rasmané Ouedraogo, 2016. "Commodity Price Shocks and Financial Sector Fragility," IMF Working Papers 16/12, International Monetary Fund.

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