Dependence to Diversification - Banking - Lecture Slides, Slides of Banking and Finance

Download Dependence to Diversification - Banking - Lecture Slides and more Slides Banking and Finance in PDF only on Docsity! Natural Resources and Economic Growth: From Dependence to Diversification Docsity.com Overview of presentation 1. Origins and symptoms of the Dutch disease 2. Thinking about natural resources and economic growth 3. Interlude on OPEC 4. Empirical evidence on resources and growth around the world 5. Lessons from Norway Docsity.com Why these things may be important Exports and FDI are good for growth Openness to trade and investment stimulates imports of goods and services, technology, ideas, know-how Too much primary export dependence and too little manufacturing may hurt growth So, economic growth is key Docsity.com Arab countries: Exports 1960-1999 (% of GDP) 0 10 20 30 40 50 60 70 80 19 60 19 63 19 66 19 69 19 72 19 75 19 78 19 81 19 84 19 87 19 90 19 93 19 96 19 99 Six nonoil-producing Arab countries Six oil-producing Arab countries Docsity.com Thinking about natural resources and growth Natural resources Economic growth x 2 Docsity.com Crowding out Put differently, natural capital may crowd out Social capital Human capital Physical capital Matter of taste whether these mechanisms are viewed as additional symptoms of the Dutch disease or as separate channels of transmission Docsity.com Interlude: A quick look at OPEC Nigeria has been stagnant since independence in 1960: No growth Per capita growth 1965-1998 Iran and Venezuela: -1% per year Libya: -2% Iraq and Kuwait: -3% Qatar: -6% Why? 3 Docsity.com Background: A quick look at OPEC King Faisal of Saudi Arabia (1964- 1975) would hardly have been surprised: “In one generation we went from riding camels to riding Cadillacs. The way we are wasting money, I fear the next generation will be riding camels again.” Docsity.com But there is an exception: Norway The problem is not the existence of natural wealth as such ... but rather the failure to avert the dangers that accompany the gifts of nature Norway is, so far, a success story Government takes in 80% of oil rent and invests it mostly in foreign securities No signs of damage to growth potential, at least not yet (but some worry!) Docsity.com Natural capital and growth: The evidence Review a few of the empirical findings of the new literature on natural resource abundance and growth Present cross-country evidence Individual historical case studies support the results Stress linkages between natural capital and various determinants of growth as well as growth itself 4 Docsity.com Education and natural capital -40 -20 0 20 40 60 80 100 120 140 0 10 20 30 40 50 60 Share of natural capital in national wealth 1994 (%) G ro ss s ec on da ry -s ch oo l e nr ol m en t 1 98 0- 97 (% ) A five percentage point increase in the natural capital share goes along with a decrease in secondary-school enrolment by almost 10 percentage points. 91 countries r = -0.66 A new measure of natural resource dependence Confirms results based on other measures r = rank correlation Docsity.com Interpretation of results Natural-resource-based industries are generally less high-skill labor intensive and less high-quality capital intensive than others, and so confer few external benefits distort comparative advantage impede learning by doing, technical advance, and economic growth Docsity.com Investment and natural capital 85 countries 0 5 10 15 20 25 30 35 0 10 20 30 40 50 60 Share of natural capital in national wealth 1994 (%) G ro ss d om es tic in ve st m en t 1 96 5- 98 (% o f G D P r = -0.38 A ten point increase in the natural capital share goes along with a decrease in investment by 2% of GDP. Docsity.com Economic growth and investment 85 countries -8 -6 -4 -2 0 2 4 6 0 5 10 15 20 25 30 35 Gross domestic investment 1965-98 (% of GDP) A nn ua l g ro w th o f G N P pe r c ap ita 1 96 5- 98 , a dj us te d fo r i ni tia l i nc om e (% ) r = 0.65 A four point increase in the investment rate goes along with an increase in per capita growth by 1%. Docsity.com Economic growth and openness 87 countries -8 -6 -4 -2 0 2 4 6 -40 -20 0 20 40 Actual less predicted exports 1965-98 (% of GDP) A nn ua l g ro w th o f G N P p er c ap ita 1 96 5- 98 , a dj us te d fo r in iti al in co m e (% ) An increase in openness by 14% of GDP is associated with an increase in per capita growth by 1% per year. r = 0.40 Docsity.com Summary of results on openness Growth Openness Growth Resources Openness Resources + = Docsity.com Economic growth and natural capital 85 countries What is the empirical evidence? -8 -6 -4 -2 0 2 4 6 0 10 20 30 40 50 60 Share of natural capital in national wealth 1994 (%) G ro w th o f G N P pe r c ap ita 1 96 5- 98 , a dj us te d fo r i ni tia l in co m e (% ) r = -0.64 A ten percentage point increase in the natural capital share goes along with a decrease in per capita growth by 1% per year Docsity.com The oil fund: A fair and efficient strategy The purpose of the oil fund To share the wealth fairly across generations To shield domestic economy from overheating and possible waste Fund will become huge ... if Norwegians resist the temptation to use too much of the money to meet current needs Docsity.com Why Norway has succeeded where OPEC failed Long tradition of democracy and market economy in Norway since before the advent of oil  Large-scale rent seeking was averted Adequate investment performance Excellent education record Even so, Norway faces challenges Some (weak) signs of Dutch disease Stagnant exports, sluggish FDI Docsity.com One last point Perhaps the main challenge is to make sure that the oil fund does not instill a false sense of security May need to immunize the fund from political interference -- like the courts, media, even central banks This may require privatization But private sector is not infallible either So, best to adopt a mixed strategy Docsity.com