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Thorvaldur Gylfason

Case studies of Macroeconomic Management in Resource-Rich Countries . Thorvaldur Gylfason. IMF-Middle East Center for Economics and Finance (CEF) Course on Macroeconomic Management in Natural Resource-Rich Countries Kuwait City , Kuwait , 6-17 January 2013. overview. Stories, stories

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Thorvaldur Gylfason

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  1. Case studies ofMacroeconomic Management in Resource-Rich Countries ThorvaldurGylfason IMF-Middle East Center for Economics and Finance (CEF) Course on Macroeconomic Management in Natural Resource-Rich Countries KuwaitCity, Kuwait, 6-17 January 2013

  2. overview • Stories, stories • Success stories without natural resources • Success stories with natural resources • Failures with and without natural resources

  3. success without resources • Japan • Stagnant since 1990 • Switzerland • Steady progress • Hong Kong • Singapore • City states • Cities are more efficient, and richer, than countries • But start with Gapminder: • Per capita GDP and life expectancy • Importance of social as well as economic indicators See gapminder.org

  4. Japan and switzerland 1960-2008 1980-2008 Per capita GDP (2005 USD, ppp) Life expectancy (years)

  5. Hong kong and singapore 1960-2008 1980-2008 Per capita GDP (2005 USD, ppp) Life expectancy (years)

  6. Mixed Success with resources • Norway, Saudi Arabia, and Algeria • Also, Norway vs. Iceland • Botswana, Congo, and Sierra Leone • Also, Botswana vs. Gabon, plus Nigeria • Azerbaijan, Kasakhstan, Russia, and Turkmenistan • Malaysia and Singapore • Mauritius, Costa Rica, and Fiji • Also, Mauritius vs. Madagascar • Chile and Zambia • Mexico and Venezuela

  7. Failures or mixed successes with resources: long list • African countries • Chad • Congo • Gabon • Guinea • Libya • Nigeria • Sierra Leone • Sudan • Others • Iran • Iraq • Saudi Arabia • Russia • Turkmenistan • Uzbekistan • Mexico • Venezuela

  8. Abundance vs. dependence Dependence hurts growth, even if abundance may help Hypothesis: Resource poor, resource dependent (Chad, Mali) Resource rich, resource dependent (OPEC) Resource dependence Resource poor, resource free (Jordan, Panama) Resource rich, resource free (Canada, USA) Resource abundance

  9. Economies blessed with abundant oil, minerals, or other natural resources should be able to invest the “rents” or proceeds at home, raising their growth potential. But the historical experience has most often been the reverse. The pitfalls are well known. Sometimes the state sells extraction rights too cheaply or taxes resource revenues too lightly. Sometimes the money it raises is stolen or squandered by rent-seeking elites and vested interests. When the money is invested, it is not always invested wisely or transparently. And by providing a ready source of foreign-exchange, natural resources can also reduce incentives for diversifying exports, a predicament known as “Dutch disease.” States will improve on this sorry historical record only if they capture an appropriate share of the resource rents; save a judicious amount overseas; and set clear, growth-oriented priorities for absorbing the remainder at home. commission on Growth and development report The Growth Report: Strategies for Sustained Growth and Inclusive Development, Commission on Growth and Development, The World Bank, 2008.

  10. Population drag and Resource depletion drag for constant K/Y for u = -gN

  11. Botswana and diamonds Generally, democracy is good for growth 1980-2008 Average democracy index 1980-2008 -6 Increase in life expectancy in years 1980-2008 7 -2 6 1 Per capita GNI (USD at PPP) Democracy (from -10 to 10)

  12. Botswana and diamonds 1960-2008 Average democracy index 1960-2008 Increase in life expectancy in years 1960-2008 4 7 -2 14 6 Real Per Capita GDP (2000 USD) Democracy

  13. Botswana and diamonds 1970-2008 • Alternative measures of education • Primary enrolment • Not much variation • Secondary enrolment • Boys vs. girls • Tertiary enrolment • Expenditure on education • School life expectancy • Expected years of schooling • Inputs vs. output Education (secondary, %)

  14. Botswana and diamonds 1960-2008 • There is another way to provide more and better and more evenly shared education to children • Produce fewer children to increase their average “quality” • Fertility is measured by births per woman Fertility

  15. Botswana and diamonds 2000-2009 Ibrahim index • Measures delivery of public goods and services to citizens based on proxies for • Safety and Rule of Law • Participation and Human Rights • Sustainable Economic Opportunity • Human Development Governance (0 to 100)

  16. Botswana and diamonds • Corruption Perceptions Index measures perceived levels of public sector corruption in 178 countries • Based on survey interviews with business people • Each score is an average of several surveys Even so, Botswana has some distance to go More corruption Corruption (0 to 10)

  17. Botswana, gabon, and Nigeria 1980-2008 Real Per Capita GDP (2000 USD) Democracy

  18. Botswana, gabon, and Nigeria 1960-2008 Real Per Capita GDP (2000 USD) Democracy

  19. Botswana, gabon, and Nigeria 1970-2008 1960-2008 Education (secondary, %) Fertility

  20. Botswana, gabon, and Nigeria Ibrahim index Again, Botswana has some distance to go More corruption Governance Corruption (from 10 to 0)

  21. Botswana, gabon, and Nigeria • Botswana has a much less equal distribution of income than Gabon and Nigeria • Gini index ranges from about 25 or so in Scandinavia (most equal) to over 60 in Botswana, Brazil, and South Africa (least equal) Gini index of inequality

  22. impressive record, yes, but Botswana is not perfect • Botswana has a much less equal distribution of income than Gabon and Nigeria • Same political party in power since independence in 1966, suggesting insufficient political diversification • Corruption is not a serious problem by African standards, but would be considered problematic by OECD standards • Unemployment is widespread • Was 40% 2003-2004, 24% 2005-2007, is now 7.5% (2008-2010)

  23. Chile and copper 1980-2008 10 4 6 13 -1 -6 Per Capita GNI at PPP Democracy

  24. Chile and copper 1960-2008 22 3 -2 3 26 0 Real Per Capita GDP Democracy

  25. Chile and copper 1960-2008 1970-2008 Education Fertility

  26. Chile and copper 1970-2008 More corruption Education Corruption

  27. Mauritius and sugar 1980-2008 10 7 10 6 5 4 Per Capita GNI at PPP Democracy

  28. Mauritius and sugar 1960-2008 17 10 10 13 13 5 Real Per Capita GDP Democracy

  29. Mauritius and sugar 1960-2008 1970-2008 Education Fertility

  30. Mauritius and sugar 1970-2008 More corruption Education Corruption

  31. Azerbaijan, Kazakhstan, russia, and turkmenistan Oil and gas 1989-2008 1991-2008 Per Capita GNI at PPP Democracy

  32. Azerbaijan, Kazakhstan, russia, and turkmenistan Oil and gas 1989-2008 1995-2008 Per Capita GNI at PPP Manufactures (% of exports)

  33. Azerbaijan, Kazakhstan, russia, and turkmenistan Oil and gas 1960-2008 1981-2008 Secondary education Fertility

  34. Azerbaijan, Kazakhstan, russia, and turkmenistan Oil and gas 1960-2008 More corruption Life expectancy (years) Corruption

  35. Malaysia and singapore Income ratio went from 3 to 3.5 1980-2008 1960-2008 3.5 3 Per Capita GNI at PPP Life expectancy (Years)

  36. Malaysia and singapore Income ratio went from 2.8 to 5.4 1960-2008 Real Per Capita GDP Life expectancy (Years)

  37. Malaysia and singapore 1957-2008 More corruption Democracy Corruption

  38. Malaysia and singapore 1960-2008 1970-2008 Labor force with secondary education in Singapore up from 30% to 50% against 56% in Malaysia Education Fertility

  39. A Tale of two countries

  40. A Tale of two countries

  41. A Tale of two countries

  42. A Tale of two countries

  43. A Tale of two countries

  44. A Tale of two countries

  45. A Tale of two countries

  46. A Tale of two countries 1.01547= 2

  47. Mexico and venezuela 1980-2008 Per Capita GNI at PPP Democracy

  48. Mexico and venezuela 1960-2008 Real Per Capita GDP Democracy

  49. Mexico and venezuela 1960-2008 Life expectancy Fertility

  50. Mexico and venezuela 1971-2008 More corruption Education Corruption

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