Industrial Commodities

This thesis contains three essays on growth, development and exhaustible natural resources. The first essay examines the choice of occupation between productive activities and rent-seeking in an oil economy. Three regimes can occur: no rent-seeking, coexistence of rent-seeking and productive activity and full rent-seeking. An oil boom may boost GDP through a multiplier effect, or raise it less than proportional. The boom may even lower GDP depending on its impact on the allocation of talent and provision of public productive services. Booms may, however, be a curse even when the voracity effect, by which fiscal transfers grow at a higher rate than the size of windfalls, is not operative. The rest of the thesis centres around the transitional dynamics of the Lucastype growth models. When the ratio of physical to human capital is sufficiently high, transition paths of consumption and physical capital are U-shaped. They fall for a finite period and then rise. This distinguishes the stages of transition in the Lucas setup from that of Ramsey. We find that the oil economies, which are relatively rich in terms of physical capital, have failed to develop human capital accordingly. This capital imbalance may lead to a high but unsustainable level of consumption. It may also rationalize the negative growth effect of oil windfalls when consumption smoothing is not strong. The third essay extends the Aghion-Howitt growth model, augmented by exhaustible resources, to address the coexistence of the steady state and transitional dynamics. We establish the existence of transition and show that the dynamics of resource extraction does not affect other sectors. The model, therefore, shares the same dynamics with the Lucas model. If-shaped path of consumption and physical capital, thus, reveals that some endogenous growth models may not produce sustainable development paths in their transition stage.

This thesis contains three essays on growth, development and exhaustible natural resources. The first essay examines the choice of occupation between productive activities and rent-seeking in an oil economy. Three regimes can occur: no rent-seeking, coexistence of rent-seeking and productive activity and full rent-seeking. An oil boom may boost GDP through a multiplier effect, or raise it less than proportional. The boom may even lower GDP depending on its impact on the allocation of talent and provision of public productive services. Booms may, however, be a curse even when the voracity effect, by which fiscal transfers grow at a higher rate than the size of windfalls, is not operative. The rest of the thesis centres around the transitional dynamics of the Lucastype growth models. When the ratio of physical to human capital is sufficiently high, transition paths of consumption and physical capital are U-shaped. They fall for a finite period and then rise. This distinguishes the stages of transition in the Lucas setup from that of Ramsey. We find that the oil economies, which are relatively rich in terms of physical capital, have failed to develop human capital accordingly. This capital imbalance may lead to a high but unsustainable level of consumption. It may also rationalize the negative growth effect of oil windfalls when consumption smoothing is not strong. The third essay extends the Aghion-Howitt growth model, augmented by exhaustible resources, to address the coexistence of the steady state and transitional dynamics. We establish the existence of transition and show that the dynamics of resource extraction does not affect other sectors. The model, therefore, shares the same dynamics with the Lucas model. If-shaped path of consumption and physical capital, thus, reveals that some endogenous growth models may not produce sustainable development paths in their transition stage.

Over the years the discovery of oil and its attending mismanagement have contributed to the decline of the Nigerian manufacturing. It is an established fact that resource-poor nations outdone the resource-rich nations. The national economies are exposed to marked prices when they dependent on natural resources revenues. The oil dependence and the precariousness of oil prices in global markets lead to major challenges in fiscal planning, lead to financial disaster when oil prices fall down and decrease the value of public spending. When oil prices drop, however, fiscal budgets go into deficit; oil dependent economies begin taking loans leveraged against their reserves, and walk unhindered into debt. This paper discusses the resource curse in Nigeria following significant oil discoveries. The study took a historical perspective to trace the history of the Dutch Disease in Nigeria and how it affects the manufacturing industry. The paper also seeks to answer the question on whether manufacturing was neglected as a result of the oil boom. The literature review shows that when a country discovers a substantial oil and gas deposit and begins large-scale exportation, it results in the appreciation of the country's real exchange rate, thereby reducing the competitiveness of the country's traditional export. First, it was discovered that persistent increase in oil price negatively impact output in manufacturing as consistent with the Dutch disease. Second, facts in the data confirm that the huge assurances held out by the inflow of earnings from oil export have not made any momentous improvement in the economy and lives of Nigerians in general. The paper traces the challenge to the inherent contradictions connected with countries that depend on oil as their key export article of trade. Third, it is discovered that Dutch disease affects manufacturing performance indicators including capacity utilisation, cost of production, installed and actual efficiencies. To treat the disease needs a holistic approach involving effective administration of the nation's oil revenue. Although the disease appears to have become malignant in Nigeria, it is still curable, at least in the long-run, if suitable measures are truly implemented and successive governments at all levels exhibit the political will to overcome the illness. This implies that the government should strive towards long term economic development and diversification by enhancing among others, its institutional quality and combating corruption. The paper is a wakeup call to support the manufacturing sector for employment generation and economic growth.

This study aims to explain the poor performance of trade openness and foreign direct investment recorded in Algeria the last few years. The period of the study extends from 2004 to 2013. Using a time series data type, a classic linear regression model has been adopted in order to test hypotheses and explain the relationship between natural resource dependence and the performance of trade openness and foreign direct investment. SPSS software for windows version 19 has been used for statistical analysis which revealed several findings, essentially that there is a negative relationship between natural resource dependence and trade openness and foreign direct investment performances, which means that an increase of resource dependence results in a decrease in both trade openness and foreign direct investment.

Most of the empirical evidence has shown that the majority of oil dependent countries have the low level of financial development; thus, they are much more volatile and exposed to the oil shocks and the so named “oil curse”. This paper aims to investigate the impact of the Algerian financial system—as one of major oil economies—on the economic growth and escaping the oil curse. Over the past two decades, Algeria has courageously attempted to modernize its financial system despite social strife and challenges posed by the large hydrocarbon sector and an inefficient public sector. In fact, various reforms have been undertaken since the early 1990s to the transition from planned to an open market economy. So, the first section provides the research background based on a theoretical model and a set of empirical studies about financial development and the oil curse. An analytical framework of the Algerian financial system evolution is provided in the second section, focusing on the two p...

Competing explanations of the resource curse are tested using panel data. The data support the existence of a mineral resource curse for developing countries with weak institutions, consistent with the hypothesis that owners of mineral resources use weak institutions and openness to trade to stifle the development of human capital, to the detriment of growth of other sectors of the economy. Manufacturing imports substitute for the development of domestic production, so openness to trade correlates with lower growth in mineral dependent economies. The Dutch disease and debt overhang explanations of the resource curse are not supported.

This note looks at so-called Dutch disease, a phenomenon reflecting changes in the structure of production in the wake of a favorable shock (such as a large natural resource discovery, a rise in the international price of an exportable commodity, or the presence of sustained ...

This paper shows that the Dutch disease can be more formally characterised as low economic complexity using ECI-type indicators; there is a solid and robust inverse relationship between exports concentrating on natural resources and economic complexity as measured by complexity indicators for a database of 122 countries from 1963 to 2013. In a large majority of cases, oil answers for shares in excess of 50% of exports. In addition to empirical panel analysis, we address case studies concerned with Indonesia and Nigeria and introduce a brief review of the theoretical literature on the topic. Indonesia is considered in the literature as a good example in avoiding the negative effects of the Dutch disease, whereas Nigeria is taken as a bad example in terms of institutions and policies adopted during the seventies and eighties. The empirical results show that complexity analysis and Big Data may offer significant contributions to the still-current debate surrounding the Dutch disease.

The continued decline in global poverty during the last 100 years is a remarkable achievement, a decline that has been even more significant in the last three decades. In 1981, the percentage of the world population living below $1.25 a day was 52 percent. By 2005, that rate had more than halved to 25 percent (Chen and Ravallion 2009). In recent years, poverty reduction has continued in most countries, even after the financial, food, and fuel shocks of 2008–9. This trend is expected to continue, especially if developing countries manage to sustain the rapid per capita income growth rates they achieved over the last decade. If developing countries do maintain their income growth rates, poverty headcounts at the $1 or $2 per day could turn out to be almost obsolete as measures of well-being over the next 50 to 100 years. However, there is a growing concern that climate change could slow or possibly even reverse progress on poverty reduction. This concern is rooted in the fact that most developing countries are more dependent on agriculture and other climate-sensitive natural resources for income and well-being, and that they also lack sufficient financial and technical capacities to manage increasing climate risk. Climate change is a long-term problem that has been unfolding over many decades. It is likely to lead not only to changes in the mean levels of temperatures and rainfall, but also to a significant increase in the variability of climate and in the frequency of extreme events. Given the complexities involved in an analysis of the climate change impacts on poverty, different approaches may be helpful in considering these impacts. One way is to use econo-mywide growth models incorporating climate change impacts to work out consistent scenarios for how climate change might affect the path of poverty over the next decades. Another approach is to learn about sector-specific channels through which longer-term climate change affects poverty, the size of such impacts, the potential heterogeneity of impacts, and the types of policies that may alleviate the adverse impacts. The information generated by this approach is useful in tackling poverty today, as well as in preparing for how to adapt to climate change in the future. Yet another approach is to explore how current climate variability affects poverty, and then examine the impacts of increased variability on future poverty. This note considers some recent findings from these various approaches. Over the last century, the world has seen a sustained decline in the proportion of people living in poverty. However, there is an increasing concern that climate change could slow or possibly even reverse poverty reduction progress. Given the complexities involved in analyzing climate change impacts on poverty, different approaches can be helpful; this note surveys the results of recent research on climate change impacts on poverty.

Context, Recent Trends, and Lessons from the Crisis Developing countries entered the recent crisis in a much stronger macroeconomic and financial position than in the past. In general, they had much smaller fiscal and current account deficits, lower inflation, higher international reserves, more flexible exchange rates, lower public and external debt, and less financial sector vulnerability (Canuto and Giugale 2010; Kose and Prasad 2010). 2 Among middle-income countries , the median ratio of general government debt to gross domestic product (GDP) almost halved, while in a sample of low-income countries (LICs), it fell even more precipitously, aided by substantial debt relief (figure 1). The global economic crisis that broke out in 2008 has reawakened interest in fiscal policy. In the early stages of the crisis, there was a widespread turn to countercyclical fiscal stimulus. Furthermore, the recent euro area crisis has underlined the importance of long-term fiscal sustainability for macroeconomic stability. More subtly, the global crisis has also refocused interest in fiscal policy as an instrument for longer-term growth and development. In the potential " new normal " of continued sluggishness in the advanced world, developing countries have strong incentives to seek out new domestic engines for efficiency and productivity growth, as well as for greater equity in development. The potential of fiscal policy to promote these ends is therefore of great interest to developing country policy makers. This note 1 focuses on that potential and provides an overview of how fiscal positions in developing countries have evolved in the wake of the crisis, as well as some emerging policy lessons. It then sketches a conceptual framework for thinking about the connections between fiscal policy and longer-term growth and development. Finally, this note highlights some findings about the connections between fiscal policy and development.

The idea of scaling up aid to developing countries has increased fears of “Dutch Disease” in the donor community and recipient countries. Through its impact on inflation and the exchange-rate, aid could slow down growth and human development, undermining the aims of donors and recipients. By using the basic model of Dutch Disease, adjusting it to the circumstance of developing countries and taking a medium-term view, we explain how it is possible to avoid Dutch Disease. Important factors determining the impact seem to be: the spending pattern of aid, the amount of imports financed with aid and the coordination between the fiscal and monetary authorities. As the IMF is one of the most important participants in the discussion around this topic, we also clarify the specific terms this institution uses to discuss this sort of topics. The paper ends with referring to the fact that understanding the problem is one thing, taking these economic decisions on a political level may in certain ...

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This note looks at so-called Dutch disease, a phenomenon reflecting changes in the structure of production in the wake of a favorable shock (such as a large natural resource discovery, a rise in the international price of an exportable commodity, or the presence of sustained ...

Economic Geography of the Australian Mining Industry.  Tijdschrift Voor Economische En Sociale Geografie.  2016.  ISSN: 1467-9663. 
http://onlinelibrary.wiley.com/doi/10.1111/tesg.12185/abstract

This paper is a discussion of the economic geography of Australia. It provides a history of foreign investment in mining, and discusses several resources booms that shaped the landscape of the continent and the role of governments (state, federal and territory governments) in this process. The paper presents a chronological account of the development of the Australian mining industry, the primary activities of which are the extraction, and export of unprocessed coal, iron, minerals and increasingly natural gas. The paper analyzes the industry’s interaction with foreign investment and government assistance (that is government spending in relation to the industry such as subsidies, loans and infrastructure construction etc). Australia’s trade and foreign investment environment have long been deregulated. The Australian mining industry has benefited from this deregulation. But its most spectacular period has been the “commodities super-cycle” of the 2000s-2010s. Overall, its contribution to exports has long typified the mining industry. The discussion herein draws attention to the applicability of the ‘eclectic theory’ in reference to foreign investment in mining. That is, investing mining MNEs (multinational enterprises) have three main types of ‘locational advantages’ in Australia, 1) volume of the availability of resources, 2) foreign investment regulatory environment and 3) government assistance that benefits the mining industry’s expansion.
Keywords: Australia, economic geography, mining, FDI, government, neoliberalism

Assessing fiscal sustainability – i.e. considering whether or not a country can maintain its current fiscal policies without running into solvency problems and possible default – requires projections on a government's future revenue stream, expenditures and contingent liabilities within a macroeconomic framework. Such an exercise is always subject to uncertainty. In commodity-rich countries dependent upon resource revenues, this is intensified by unpredictable and volatile commodity prices. The paper applies a framework for fiscal sustainability and managing uncertainty to Congo. Congo is rapidly building up its production and export capacity and can expect to be a substantial energy producer for several decades to come. Its major challenge is how to manage the hump shaped nature of its oil windfall and how to ensure fiscal sustainability when the oil windfall is gone. The paper analyzes explicitly the effects of uncertainty through stochastic analysis allowing for Value-at-Ris...

El artículo analiza las causas políticas de las devaluaciones chinas ocurridas en las últimas semanas y sostienen que la medida tiene más trasfondo político que económico y que el verdadero propósito es mejorar la legitimidad del PCCh y su gobernabilidad.
Desde ese lugar, se analiza el impacto de la devaluación en los países de América Latina y particularmente de Argentina. Los efectos que se esperan son: reducción de los superávit comerciales (Chile y Brasil); mayores déficit comerciales (Argentina, Venezuela, Colombia, etc.) y mayor primarización y reprimarización productiva.

This note looks at so-called Dutch disease, a phenomenon reflecting changes in the structure of production in the wake of a favorable shock (such as a large natural resource discovery, a rise in the international price of an exportable commodity, or the presence of sustained aid or capital inflows). Where the natural resources discovered are oil or minerals, a contraction or stagnation of manufacturing and agriculture could accompany the positive effects of the shock, according to the theory. The note considers channels through which such natural resource wealth can affect the economy. It also focuses on the  development implications of Dutch disease, particularly the potential negative effects related to productivity dynamics and volatility; and concludes with a summary of possible policy
responses, including the mix of fiscal, exchange rate, and structural reform policies.