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How Should Oil Exporters Spend Their Rents?

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  • Alan Gelb
  • Sina Grasmann

Abstract

Oil and other mineral rents are, in most countries, owned by producing states on behalf of their citizens. The paper focuses on three questions. First, how should countries take into account the great uncertainty over future export prices in planning their spending programs? Second, how should countries think about the possible range of options for absorbing oil rents, including transferring them to citizen-owners? What expenditures and policies approaches seem to have facilitated efforts to diversify the non-oil economy? Third, what factors seem to have helped some developing countries to avoid the most adverse effects of the “resource curse”? The paper does not address the full range of issues relating to oil and governance, and it also does not address the longer-run question of how much countries should save in response to the exhaustible nature of oil reserves. It argues for approaches that increase public understanding of the need for prudent spending in booms, and for comprehensive consideration of a range of options for using rents. Drawing on the experience of a few successful countries, it points to a number of common factors that seem to be important in enabling countries to obtain a positive payoff from resource wealth. These include a strong concern for social stability and growth, a capable and engaged technocracy, and interests in the non-oil sectors able to act as agents of restraint. Development partners have little direct leverage on oil-exporting countries, but can help through sharing information, disseminating standards and encouraging civil society, especially constituencies with an interest in spending restraint. These activities should be pursued during the slumps to set the foundation for better management during the booms.

Suggested Citation

  • Alan Gelb & Sina Grasmann, 2010. "How Should Oil Exporters Spend Their Rents?," Working Papers 221, Center for Global Development.
  • Handle: RePEc:cgd:wpaper:221
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    File URL: https://www.cgdev.org/publication/how-should-oil-exporters-spend-their-rents-working-paper-221
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    Cited by:

    1. Issouf Samaké & Priscilla S Muthoora & Bruno Versailles, 2013. "Fiscal Sustainability, Public Investment, and Growth in Natural Resource-Rich, Low-Income Countries; The Case of Cameroon," IMF Working Papers 13/144, International Monetary Fund.
    2. repec:eee:ecanpo:v:55:y:2017:i:c:p:179-193 is not listed on IDEAS
    3. Hailu, Degol & Kipgen, Chinpihoi, 2017. "The Extractives Dependence Index (EDI)," Resources Policy, Elsevier, vol. 51(C), pages 251-264.
    4. Grigoli, Francesco & Mills, Zachary, 2011. "Do high and volatile levels of public investment suggest misconduct ? the role of institutional quality," Policy Research Working Paper Series 5735, The World Bank.
    5. Breisinger, Clemens & Diao, Xinshen & Wiebelt, Manfred, 2014. "Can oil-led growth and structural change go hand in hand in Ghana?," Journal of Policy Modeling, Elsevier, vol. 36(3), pages 507-523.
    6. International Monetary Fund, 2017. "Jamaica; Second Review Under the Stand-By Arrangement and Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Jamaica," IMF Staff Country Reports 11/329, International Monetary Fund.
    7. Keyra Primus, 2016. "Fiscal Rules for Resource Windfall Allocation; The Case of Trinidad and Tobago," IMF Working Papers 16/188, International Monetary Fund.
    8. Pedro Concei ‹o & Ricardo Fuentes & Sebastian Levine, 2011. "Managing Natural Resources for Human Development in Low-Income Countries," UNDP Africa Policy Notes 2011-002, United Nations Development Programme, Regional Bureau for Africa.
    9. Iacono, Roberto, 2017. "A comparison of fiscal rules for resource-rich economies," Economic Analysis and Policy, Elsevier, vol. 55(C), pages 179-193.
    10. Christian von Haldenwang & Maksym Ivanyna, 2017. "Does the political resource curse affect public finance? The vulnerability of tax revenue in resource-rich countries," WIDER Working Paper Series 007, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    Keywords

    Oil; exports; oil rents; resource curse; economic development; economic growth;

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