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The political economy of fiscal policy and economic management in oil exporting countries

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  • Eifert, Benn*Gelb, Alan*Borje Tallroth, Nils

Abstract

Despite massive oil rent incomes since the early 1970s, the economic performance of oil-exporting countries-with notable exceptions-is poor. While there is extensive literature on the management of oil resources, analysis of the underlying political determinants of this poor performance is more sparse. Drawing on concepts from the comparative institutionalist tradition in political science, the authors develop a generalized typology of political states that is used in analyzing the political economy of fiscal and economic management in oil-exporting countries with widely differing political systems. In assessing performance, the authors focus on issues of long-term savings, economic stabilization, and efficient use of oil rents. The comparisons of country experiences suggest that countries with strong, mature, democratic traditions have advantages in managing oil rents well because of their ability to reach consensus, their educated and informed electorates, and a high level of transparency that facilitates clear decisions on how to use rents over a long horizon. Yet even these systems, ensuring cautious use of oil income is a continuing struggle. Traditional and modernizing autocracies have also demonstrated their ability to sustain long decision horizons and implement developmental policies. But resistance to transparency and the danger of oil-led spending and expenditure commitments becoming the major legitimizing force behind the state may pose risk to the long-term sustainability of their current development strategies. In contrast, little positive effect can be expected from the politically unstable, predatory autocracies, which typically have very short policy horizons and sometimes the characteristics of"roving bandit"regimes. Factional democracies, with weak political parties and highly personalized politics, present particular challenges because they lack a sufficiently effective political system to create a consensus among strong competing interests. Special attention will be needed to increase transparency and raise public awareness in these countries. And oil rent makes it more difficult to sustain a constituency in favor of sound, longer-run economic management because it weakens incentives for agents to support checks and balances that impinge on their individual plans to appropriate the rents. The country comparisons further demonstrate that technical solutions-such as the establishment of oil stabilization funds and budgetary reforms-to enhance transparency and efficiency in the use of oil rents will not work well unless constituencies can be developed in support of such measures.

Suggested Citation

  • Eifert, Benn*Gelb, Alan*Borje Tallroth, Nils, 2002. "The political economy of fiscal policy and economic management in oil exporting countries," Policy Research Working Paper Series 2899, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2899
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    References listed on IDEAS

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    Cited by:

    1. repec:idb:idbbks:371 is not listed on IDEAS
    2. Tsani, Stella, 2013. "Natural resources, governance and institutional quality: The role of resource funds," Resources Policy, Elsevier, vol. 38(2), pages 181-195.
    3. Bhattacharyya, Subhes C. & Blake, Andon, 2010. "Analysis of oil export dependency of MENA countries: Drivers, trends and prospects," Energy Policy, Elsevier, vol. 38(2), pages 1098-1107, February.
    4. World Bank, 2009. "Economy-Wide Impact of Oil Discovery in Ghana," World Bank Other Operational Studies 18903, The World Bank.
    5. Andersen, Jørgen Juel & Aslaksen, Silje, 2013. "Oil and political survival," Journal of Development Economics, Elsevier, vol. 100(1), pages 89-106.
    6. Ramírez-Cendrero, Juan M. & Paz, María J., 2017. "Oil fiscal regimes and national oil companies: A comparison between Pemex and Petrobras," Energy Policy, Elsevier, vol. 101(C), pages 473-483.
    7. repec:taf:eurpls:v:26:y:2018:i:2:p:279-296 is not listed on IDEAS
    8. Thomas Baunsgaard, 2003. "Fiscal Policy in Nigeria; Any Role for Rules?," IMF Working Papers 03/155, International Monetary Fund.
    9. World Bank, 2007. "An Assessment of the Investment Climate in Botswana, Volume 2. Detailed Results and Econometric Analysis," World Bank Other Operational Studies 7747, The World Bank.
    10. José R. López-Cálix & Alberto Melo & Elaine Tinsley & Sara Calvo, 2005. "Creating Fiscal Space for Poverty Reduction in Ecuador: A Fiscal Management and Public Expenditure Review," IDB Publications (Books), Inter-American Development Bank, number 60858, February.
    11. World Bank, 2004. "Ecuador - Creating Fiscal Space for Poverty Reduction : A Fiscal Management and Public Expenditure Review, Volume 1. Main Report," World Bank Other Operational Studies 14515, The World Bank.
    12. repec:spr:manint:v:50:y:2010:i:3:d:10.1007_s11575-010-0036-1 is not listed on IDEAS
    13. World Bank, 2003. "Nigeria - Policy Options for Growth and Stability : Volume 1. Main Report," World Bank Other Operational Studies 14388, The World Bank.
    14. World Bank, 2005. "Creating Fiscal Space for Poverty Reduction in Ecuador : A Fiscal Management and Public - Expenditure Review," World Bank Publications, The World Bank, number 7296, April.
    15. Steve Hanke, 2003. "Money and the rule of law in ecuador," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 6(3), pages 131-145.
    16. World Bank & International Monetary Fund, 2005. "Global Monitoring Report 2005 : Millennium Development Goals— From Consensus to Momentum," World Bank Publications, The World Bank, number 7325, April.
    17. World Bank, 2007. "An Assessment of the Investment Climate in Botswana : Volume I, Main Report," World Bank Other Operational Studies 7093, The World Bank.
    18. Naazneen H. Barma, 2014. "The Rentier State at Work: Comparative Experiences of the Resource Curse in East Asia and the Pacific," Asia and the Pacific Policy Studies, Wiley Blackwell, vol. 1(2), pages 257-272, May.
    19. 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.

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