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Managing Oil Price Risk in Developing Countries

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  • Julia Devlin

Abstract

This article presents a simple framework for understanding the impact of oil dependence on growth in terms of an optimal savings and investment strategy. Among the more important factors underlying this strategy is the extent to which oil price changes are temporary or permanent. This in turn determines whether a country should rely on stabilization and savings funds or the use of financial instruments to manage oil revenues--or both. Country experiences with stabilization and savings funds are surveyed, and the case is presented for using financial instrument to manage oil price risk. Policy implications for enhancing the use of financial instruments are explored, including an expanded role for international financial institutions. Copyright 2004, Oxford University Press.

Suggested Citation

  • Julia Devlin, 2004. "Managing Oil Price Risk in Developing Countries," World Bank Research Observer, World Bank Group, vol. 19(1), pages 119-139.
  • Handle: RePEc:oup:wbrobs:v:19:y:2004:i:1:p:119-139
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    Cited by:

    1. Cotter, John & Hanly, Jim, 2010. "Time-varying risk aversion: An application to energy hedging," Energy Economics, Elsevier, vol. 32(2), pages 432-441, March.
    2. Olivia S. Mitchell & John Piggott & Cagri Kumru, 2008. "Managing Public Investment Funds: Best Practices and New Challenges," NBER Working Papers 14078, National Bureau of Economic Research, Inc.
    3. International Monetary Fund, 2006. "Republic of Equatorial Guinea; Selected Issues and Statistical Appendix," IMF Staff Country Reports 06/237, International Monetary Fund.
    4. Alderman, Harold & Haque, Trina, 2006. "Countercyclical safety nets for the poor and vulnerable," Food Policy, Elsevier, vol. 31(4), pages 372-383, August.
    5. Ghiath Shabsigh & Nadeem Ilahi, 2007. "Looking Beyond the Fiscal; Do Oil Funds Bring Macroeconomic Stability?," IMF Working Papers 07/96, International Monetary Fund.
    6. Tsani, Stella, 2013. "Natural resources, governance and institutional quality: The role of resource funds," Resources Policy, Elsevier, vol. 38(2), pages 181-195.
    7. Reyes-Loya, Manuel Lorenzo & Blanco, Lorenzo, 2008. "Measuring the importance of oil-related revenues in total fiscal income for Mexico," Energy Economics, Elsevier, vol. 30(5), pages 2552-2568, September.
    8. Leonardo G. Romeo & Mohamed El Mensi, 2011. "The Difficult Road to Local Autonomy in Yemen: Decentralization Reforms between Political Rationale and Bureaucratic Resistances in a Multi-party Democracy of the Arabian Peninsula," Chapters,in: Decentralization in Developing Countries, chapter 15 Edward Elgar Publishing.
    9. Slaibi, Ahmad & Kyle, Steven C., 2006. "Oil Windfalls in Sub-Saharan Africa: Economic Implications for Local Production, Wages, and Market Equilibrium," Working Papers 179867, Cornell University, Department of Applied Economics and Management.
    10. Tsani, Stella, 2015. "On the relationship between resource funds, governance and institutions: Evidence from quantile regression analysis," Resources Policy, Elsevier, vol. 44(C), pages 94-111.
    11. Jorge Martinez-Vazquez & Fran├žois Vaillancourt (ed.), 2011. "Decentralization in Developing Countries," Books, Edward Elgar Publishing, number 14175, April.

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