Investing Volatile Resource Revenues in Capital-Scarce Economies

Natural resource revenues are an important financing source for public investment in many developing economies. Investing volatile resource revenues, however, may subject an economy to macroeconomic instability. This paper studies fiscal approaches to investing resource revenues, using Angola as an...

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Bibliographic Details
Published inPacific economic review (Oxford, England) Vol. 20; no. 1; pp. 193 - 221
Main Authors Richmond, Christine, Yackovlev, Irene, Yang, Shu-Chun S.
Format Journal Article
LanguageEnglish
Published Oxford Blackwell Publishing Ltd 01.02.2015
Subjects
Capital depreciation
Developing countries
LDCs
Macroeconomics
Natural resource management
Prairies
Public finance
Studies
Volatility
Angola
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Summary:Natural resource revenues are an important financing source for public investment in many developing economies. Investing volatile resource revenues, however, may subject an economy to macroeconomic instability. This paper studies fiscal approaches to investing resource revenues, using Angola as an example. With spend‐as‐you‐go, resource revenues are spent as received, resulting in little external saving; public investment can be interrupted, driving up the capital depreciation rate and undermining stability. Gradual scaling‐up, instead, allows countries to build up external saving to shield investment from revenue volatility. The framework adopted here can be used as a planning tool to define a medium‐term fiscal strategy.
Bibliography:istex:982EC7ADAC61258F3AC683A40C200428E5B74EB8
ArticleID:PAER12099
ark:/67375/WNG-9VJ0P01R-M
ISSN:1361-374X
1468-0106
DOI:10.1111/1468-0106.12099