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Guidelines for Exploiting Natural Resource Wealth

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  • Frederick van der Ploeg

Abstract

The principles of how best to manage the various components of national wealth are outlined, where the permanent income hypothesis, the Hotelling rule and the Hartwick rule play a prominent role. As far as managing natural resource wealth is concerned, a case is made to use an intergenerational sovereign wealth fund to smooth consumption across generations, a liquidity fund for the precautionary buffers to deal with commodity price volatility, and an investment fund to park part of the windfall until the country is ready to absorb extra spending on domestic investment. Capital scarcity implies that a positive part of the windfall should be spent on domestic investment. The conclusions highlight the political economy problems that will have to be tackled with these normative proposals for managing wealth.

Suggested Citation

  • Frederick van der Ploeg, 2014. "Guidelines for Exploiting Natural Resource Wealth," OxCarre Working Papers 128, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  • Handle: RePEc:oxf:oxcrwp:128
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    File URL: http://www.oxcarre.ox.ac.uk/files/OxCarreRP2013128(1).pdf
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    Cited by:

    1. López-Martín Bernabé & Leal-Ordoñez Julio C. & Martínez André, 2017. "Commodity Price Risk Management and Fiscal Policy in a Sovereign Default Model," Working Papers 2017-04, Banco de México.
    2. Mahumane, Gilberto & Mulder, Peter, 2016. "Introducing MOZLEAP: An integrated long-run scenario model of the emerging energy sector of Mozambique," Energy Economics, Elsevier, vol. 59(C), pages 275-289.
    3. Thorvaldur Gylfason & Jean-Pascal Nguessa Nganou, 2014. "Diversification, Dutch Disease, and Economic Growth: Options for Uganda," CESifo Working Paper Series 5095, CESifo Group Munich.

    More about this item

    Keywords

    permanent income; Hotelling rule; Hartwick rule; precaution; capital scarcity; absorption constraints; Dutch disease; investing to invest; political economy;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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