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Dutch disease and spending strategies in a resource-rich low-income country -- the case of Niger

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Listed:
  • Go, Delfin S.
  • Robinson, Sherman
  • Thierfelder, Karen
  • Utz, Robert

Abstract

This paper examines spending plans suggested by the recent literature regarding Dutch disease and examines their implications to Niger relative to its expanding mineral sector. The key to the benefits of significant mineral revenue lies with the productivity and supply responses of spending. If significant output gain is ensured, then there is little difference across the spending plans in their effects on real consumption. The overshooting of relative prices of the non-tradable sector or the shrinking share of traded sectors in gross domestic product is also ameliorated with greater supply flexibility. Growth paths of alternative spending strategies differ markedly in timing and pattern when spending does not raise productivity. As a caution against expectations that exaggerate the benefits of mineral revenue under all circumstances, the more aggressive spending plan may result in a boom-bust cycle if fiscal adjustments and debt repayments are necessary for any significant borrowing against future revenue and productivity gains are not realized. Using extractive industries revenue for transfers to households would have a greater effect on poverty reduction in the short and medium term but the long-run gains from investment in human and physical capital are likely to offset the initial lack of pro-poor bias. Different strategies differ significantly with regard to risks and required technical implementation capacity and political capacity to sustain a chosen course of action.

Suggested Citation

  • Go, Delfin S. & Robinson, Sherman & Thierfelder, Karen & Utz, Robert, 2013. "Dutch disease and spending strategies in a resource-rich low-income country -- the case of Niger," Policy Research Working Paper Series 6691, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6691
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    References listed on IDEAS

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    1. Arndt, Channing & Robinson, Sherman & Tarp, Finn, 2002. "Parameter estimation for a computable general equilibrium model: a maximum entropy approach," Economic Modelling, Elsevier, vol. 19(3), pages 375-398, May.
    2. Rabah Arezki & Frederick van der Ploeg, 2007. "Can the Natural Resource Curse Be Turned into a Blessing? The Role of Trade Policies and Institutions," Economics Working Papers ECO2007/35, European University Institute.
    3. Alan H. Gelb & Arnaud Dupuy & Rabah Arezki, 2012. "Resource Windfalls, Optimal Public Investment and Redistribution; The Role of Total Factor Productivity and Administrative Capacity," IMF Working Papers 12/200, International Monetary Fund.
    4. Arrow Kenneth J, 2007. "Global Climate Change: A Challenge to Policy," The Economists' Voice, De Gruyter, vol. 4(3), pages 1-5, June.
    5. Marcos Poplawski-Ribeiro & Mauricio Villafuerte & Thomas Baunsgaard & Christine J. Richmond, 2012. "Fiscal Frameworks for Resource Rich Developing Countries," IMF Staff Discussion Notes 12/04, International Monetary Fund.
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    Cited by:

    1. Go, Delfin S. & Robinson, Sherman & Thierfelder, Karen, 2016. "Natural resource revenue, spending strategies and economic growth in Niger," Economic Modelling, Elsevier, vol. 52(PB), pages 564-573.
    2. Montaud, Jean-Marc & Pecastaing, Nicolas & Tankari, Mahamadou, 2017. "Potential socio-economic implications of future climate change and variability for Nigerien agriculture: A countrywide dynamic CGE-Microsimulation analysis," Economic Modelling, Elsevier, vol. 63(C), pages 128-142.

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    Keywords

    Economic Theory&Research; Debt Markets; Emerging Markets; Currencies and Exchange Rates; Banks&Banking Reform;

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