IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/75702.html
   My bibliography  Save this paper

Diminishing commodity prices and capital flight in a dutch disease and resource curse environment: The case of Bolivia

Author

Listed:
  • Baja Daza, Gover
  • Fernández Tellería, Bernardo X.
  • Zavaleta Castellón, David

Abstract

Diminishing commodity prices and increasing world interest rates are the two main expected outcomes from slowdown of emerging economies and growth recovery of advanced economies in the post financial crisis. A CGE model is used to analyze commodity shocks in a natural resource country framework with two export oriented resource sectors (gas & oil and minerals) and mainly two emerging tradable sectors (food and manufacturing) with dominant import substitution orientation. Positive shocks of unusual magnitude in the pre-crisis generate strong Dutch disease (DD) effects but also unusual levels of government income, savings and investment, giving rise to a growth opportunity. A negative shock to the mineral sector in the post-crisis does not reverse the growth opportunity as long as the gas & oil sector remains strong. However, policy would be required to help absorb the labor released and in the long-run structural reforms are needed to significantly diminish built-in DD effects in this sector. If in addition a significant negative shock hits the gas & oil sector, the economy can experience negative growth. Having a stabilization fund would help in this scenario, but to avoid it altogether sector policy is more important. Additionally, a DSGE model with tradable/non-tradable sectors and skilled/unskilled savers/not savers workers is calibrated to analyze the conditions under which capital flight might occur under increasing world interest rates in the post-crisis. These conditions require a significant degree of macroeconomic deterioration which is not being observed, but point to some key variables to follow, such as the level of net external assets held by the country.

Suggested Citation

  • Baja Daza, Gover & Fernández Tellería, Bernardo X. & Zavaleta Castellón, David, 2014. "Diminishing commodity prices and capital flight in a dutch disease and resource curse environment: The case of Bolivia," MPRA Paper 75702, University Library of Munich, Germany, revised Dec 2014.
  • Handle: RePEc:pra:mprapa:75702
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/75702/1/MPRA_paper_75702.pdf
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Philippe Aghion & Diego Comin & Peter Howitt & Isabel Tecu, 2016. "When Does Domestic Savings Matter for Economic Growth?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(3), pages 381-407, August.
    2. Schmitt-Grohe, Stephanie & Uribe, Martin, 2003. "Closing small open economy models," Journal of International Economics, Elsevier, vol. 61(1), pages 163-185, October.
    3. Konstantinos Angelopoulos & James R. Malley & Wei Jiang, 2011. "The distributional consequences of tax reforms under market distortions," Working Papers 2011_21, Business School - Economics, University of Glasgow.
    4. Daniel Lederman & William F. Maloney, 2007. "Natural Resources : Neither Curse nor Destiny," World Bank Publications, The World Bank, number 7183, June.
    5. Andersen, Lykke Eg & Faris, Robert, 2001. "Reducing Volatility due to Natural Gas Exports: Is the Answer a Stabilization Fund?," Documentos de trabajo 11/2001, Instituto de Investigaciones Socio-Económicas (IISEC), Universidad Católica Boliviana.
    6. Pierpaolo Benigno, 2009. "Price Stability with Imperfect Financial Integration," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(s1), pages 121-149, February.
    7. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 215-268, November.
    8. Hornstein, Andreas & Krusell, Per & Violante, Giovanni L., 2005. "The Effects of Technical Change on Labor Market Inequalities," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.),Handbook of Economic Growth, edition 1, volume 1, chapter 20, pages 1275-1370, Elsevier.
    9. Martín-Moreno, José M. & Pérez, Rafaela & Ruiz, Jesús, 2014. "A real business cycle model with tradable and non-tradable goods for the Spanish economy," Economic Modelling, Elsevier, vol. 36(C), pages 204-212.
    10. Philippe Aghion & Peter Howitt, 2009. "The Economics of Growth," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012634, September.
    11. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
    12. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    13. Torsten Persson & Guido Tabellini, 1992. "The Politics of 1992: Fiscal Policy and European Integration," Review of Economic Studies, Oxford University Press, vol. 59(4), pages 689-701.
    14. He, Hui, 2012. "What drives the skill premium: Technological change or demographic variation?," European Economic Review, Elsevier, vol. 56(8), pages 1546-1572.
    15. R. Gaston Gelos & Alberto Isgut, 2001. "Fixed Capital Adjustment: Is Latin America Different?," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 717-726, November.
    16. repec:idb:brikps:59538 is not listed on IDEAS
    17. ROCABADO MEJÍA, Carlos, 2006. "Simulación De Reforma Al Impuesto A La Renta De Las Personas En Bolivia," Estudios Economicos de Desarrollo Internacional, Euro-American Association of Economic Development, vol. 6(2).
    18. Daniel Lederman & William F. Maloney, 2007. "Natural Resources : Neither Curse nor Destiny," World Bank Publications, The World Bank, number 7183, September.
      • Anthony J. Venables & William Maloney & Ari Kokko & Claudio Bravo Ortega & Daniel Lederman & Roberto Rigobón & José De Gregorio & Jesse Czelusta & Shamila A. Jayasuriya & Magnus Blomström & L. Colin X, 2007. "Natural Resources: Neither Curse nor Destiny," IDB Publications (Books), Inter-American Development Bank, number 59538 edited by William Maloney & Daniel Lederman, February.
    19. Klein, Paul, 2000. "Using the generalized Schur form to solve a multivariate linear rational expectations model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(10), pages 1405-1423, September.
    20. Barja Daza, Gover & Villarroel Böhrt, Sergio & Zavaleta Castellón, David, 2013. "Institutional Design and Implicit Incentives in Bolivia's Decentralization Model," Revista Latinoamericana de Desarrollo Economico, Instituto de Investigaciones Socio-Económicas (IISEC), Universidad Católica Boliviana, issue 19, pages 137-211, Mayo.
    21. repec:pri:cepsud:113krusell is not listed on IDEAS
    22. -, 2009. "Economic growth in the Caribbean," Sede Subregional de la CEPAL para el Caribe (Estudios e Investigaciones) 38668, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    23. Eugenio M Cerutti & Mario Mansilla, 2008. "Bolivia; The Hydrocarbons Boom and the Risk of Dutch Disease," IMF Working Papers 08/154, International Monetary Fund.
    24. Gustavo Adler & Nicolas E Magud, 2013. "Four Decades of Terms-of-Trade Booms; Saving-Investment Patterns and a New Metric of Income Windfall," IMF Working Papers 13/103, International Monetary Fund.
    25. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Barja, Gover & Zavaleta, David, 2016. "Disminución de precios de commodities en un ambiente de enfermedad holandesa y bendición/maldición de los recursos naturales," Revista Latinoamericana de Desarrollo Economico, Instituto de Investigaciones Socio-Económicas (IISEC), Universidad Católica Boliviana, issue 25, pages 7-40, Mayo.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Angelopoulos, Konstantinos & Asimakopoulos, Stylianos & Malley, James, 2019. "The Optimal Distribution Of The Tax Burden Over The Business Cycle," Macroeconomic Dynamics, Cambridge University Press, vol. 23(6), pages 2298-2337, September.
    2. Alessandra Cepparulo & Gilles Mourre, 2020. "How and How Much? The Growth-Friendliness of Public Spending through the Lens," European Economy - Discussion Papers 2015 - 132, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    3. Blagov, Boris & Funke, Michael, 2019. "The Regime-Dependent Evolution Of Credibility: A Fresh Look At Hong Kong'S Linked Exchange Rate System," Macroeconomic Dynamics, Cambridge University Press, vol. 23(6), pages 2434-2468, September.
    4. James B. Ang & Jakob B. Madsen, 2012. "Risk capital, private credit, and innovative production," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(4), pages 1608-1639, November.
    5. George Economides & Dimitris Papageorgiou & Apostolis Philippopoulos, 2020. "Macroeconomic Policy Lessons for Greece from the Debt Crisis," CESifo Working Paper Series 8188, CESifo.
    6. Fritz Breuss, 2015. "In Search of Growth in a Future with Diminished Expectations. The Case of Austria," WIFO Working Papers 493, WIFO.
    7. Omar Joya, 2019. "How should resource‐rich countries diversify? Estimating forward‐linkage effects of mining on productivity growth," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 27(2), pages 457-473, February.
    8. Santos, João & Domingos, Tiago & Sousa, Tânia & St. Aubyn, Miguel, 2016. "Does a small cost share reflect a negligible role for energy in economic production? Testing for aggregate production functions including capital, labor, and useful exergy through a cointegration-base," MPRA Paper 70850, University Library of Munich, Germany.
    9. Kumar, Sanjesh & Singh, Baljeet, 2019. "Barriers to the international diffusion of technological innovations," Economic Modelling, Elsevier, vol. 82(C), pages 74-86.
    10. Elie Gray & André Grimaud, 2016. "The Lindahl equilibrium in Schumpeterian growth models," Journal of Evolutionary Economics, Springer, vol. 26(1), pages 101-142, March.
    11. Antonin Bergeaud & Gilbert Cette & Rémy Lecat, 2014. "Le produit intérieur brut par habitant sur longue période en France et dans les pays avancés : le rôle de la productivité et de l’emploi," Économie et Statistique, Programme National Persée, vol. 474(1), pages 5-34.
    12. Christos Pargianas, 2016. "Endogenous Economic Institutions and Persistent Income Differences among High Income Countries," Open Economies Review, Springer, vol. 27(1), pages 139-159, February.
    13. Aghion, Philippe & Akcigit, Ufuk & Howitt, Peter, 2014. "What Do We Learn From Schumpeterian Growth Theory?," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.),Handbook of Economic Growth, edition 1, volume 2, chapter 0, pages 515-563, Elsevier.
    14. Tuomas Takalo, 2012. "Rationales and Instruments for Public Innovation Policies," Journal of Reviews on Global Economics, Lifescience Global, vol. 1, pages 157-167.
    15. Paqué Karl-Heinz, 2014. "Der Historizismus des Jakobiners," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 15(3), pages 271-287, October.
    16. Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2012. "The Environment and Directed Technical Change," American Economic Review, American Economic Association, vol. 102(1), pages 131-166, February.
    17. Ashraf, Quamrul & Gershman, Boris & Howitt, Peter, 2017. "Banks, market organization, and macroeconomic performance: An agent-based computational analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 135(C), pages 143-180.
    18. Strulik, Holger & Werner, Katharina, 2014. "Elite education, mass education, and the transition to modern growth," Center for European, Governance and Economic Development Research Discussion Papers 205, University of Goettingen, Department of Economics.
    19. Gerard Ballot & Antoine Mandel & Annick Vignes, 2015. "Agent-based modeling and economic theory: where do we stand?," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 10(2), pages 199-220, October.
    20. Kikuchi, Toru & Marjit, Sugata, 2011. "Growth with time zone differences," Economic Modelling, Elsevier, vol. 28(1), pages 637-640.

    More about this item

    Keywords

    Natural resources; External shocks; Real exchange rate; Dutch disease; Commodity prices; Capital flight; Resource curse; Bolivia; CGE; DSGE;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F60 - International Economics - - Economic Impacts of Globalization - - - General
    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:75702. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.