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Public Investment in a Developing Country Facing Natural Resource Depletion

Author

Listed:
  • Adrian Alter
  • Matteo F. Ghilardi
  • Dalia S. Hakura

Abstract

This paper analyses the trade-offs between savings, debt, public investment and capital sustainability in a developing country with looming oil exhaustibility concerns. We find that an optimal policy that maximises welfare and preserves capital and fiscal sustainability involves a moderate scaling-up of public investment in the short term. Alternative public investment paths are shown not to be optimal as they either create risks to capital and fiscal sustainability or do not fully harness the oil revenue windfall. We also show that there are large welfare gains for low-income countries from structural reforms that improve the efficiency of public investment and the project selection process. Finally, the paper highlights the fiscal and debt sustainability risks from volatile oil prices and inadequate fiscal adjustment.

Suggested Citation

  • Adrian Alter & Matteo F. Ghilardi & Dalia S. Hakura, 2017. "Public Investment in a Developing Country Facing Natural Resource Depletion," Journal of African Economies, Centre for the Study of African Economies, vol. 26(3), pages 295-321.
    • Handle: RePEc:oup:jafrec:v:26:y:2017:i:3:p:295-321.
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    File URL: http://hdl.handle.net/10.1093/jae/ejw031
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    Citations

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    Cited by:

    1. Jean-Pierre Allegret & Mohamed Tahar Benkhodja & Tovonony Razafindrabe, 2018. "Monetary Policy, Oil Stabilization Fund and the Dutch Disease," Working Papers hal-01796312, HAL.
    2. Cockburn, John & Henseler, Martin & Maisonnave, Hélène & Tiberti, Luca, 2018. "Vulnerability and policy responses in the face of natural resource discoveries and climate change: introduction," Environment and Development Economics, Cambridge University Press, vol. 23(5), pages 517-526, October.
    3. Ayad, Fayssal, 2023. "Mapping the path forward: A prospective model of natural resource depletion and sustainable development," Resources Policy, Elsevier, vol. 85(PA).
    4. Qureshi, Muhammad Imran & Qayyum, Shazia & Nassani, Abdelmohsen A. & Aldakhil, Abdullah Mohammed & Qazi Abro, Muhammad Moinuddin & Zaman, Khalid, 2019. "Management of various socio-economic factors under the United Nations sustainable development agenda," Resources Policy, Elsevier, vol. 64(C).

    More about this item

    Keywords

    public capital; debt sustainability; investment efficiency; project selection;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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