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Efficient consumption of revenues from natural resources – An application to Norwegian petroleum revenues

Author

Listed:
  • Q. Farooq Akram

    (Norges Bank)

Abstract

This paper addresses the so-called natural resource curse by devising a rule that can reduce macroeconomic costs associated with the consumption of revenues from natural resources. It assumes that such macroeconomic costs are mainly brought about by changes in the real exchange rate, which adjusts in order to maintain external balance. Thus it derives a consumption rule, denoted as the efficient consumption rate, that would make the behaviour of the real exchange rate mimic that of the real exchange rate in the absence of natural resources. Accordingly, growth of exports and imports of traditional goods and services, and implicitly the sectoral composition of the economy, become largely immune to the consumption of natural resources. The theoretical framework is applied to estimate and evaluate an efficient consumption rate for Norway’s sizeable petroleum revenues.

Suggested Citation

  • Q. Farooq Akram, 2005. "Efficient consumption of revenues from natural resources – An application to Norwegian petroleum revenues," Working Paper 2005/1, Norges Bank.
    • Handle: RePEc:bno:worpap:2005_01
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    References listed on IDEAS

    as
    1. Krugman, Paul, 1989. "Differences in income elasticities and trends in real exchange rates," European Economic Review, Elsevier, vol. 33(5), pages 1031-1046, May.
    2. Q. Farooq Akram, 2004. "Oil wealth and real exchange rates: The FEER for Norway," Working Paper 2004/16, Norges Bank.
    3. Gylfason, Thorvaldur & Herbertsson, Tryggvi Thor & Zoega, Gylfi, 1997. "A Mixed Blessing: Natural Resources and Economic Growth," CEPR Discussion Papers 1668, C.E.P.R. Discussion Papers.
    4. Gylfason, Thorvaldur & Herbertsson, Tryggvi Thor & Zoega, Gylfi, 1999. "A Mixed Blessing," Macroeconomic Dynamics, Cambridge University Press, vol. 3(2), pages 204-225, June.
    5. Sachs, J-D & Warner, A-M, 1995. "Natural Resource Abundance and Economic Growth," Papers 517a, Harvard - Institute for International Development.
    6. Corden, W M, 1984. "Booming Sector and Dutch Disease Economics: Survey and Consolidation," Oxford Economic Papers, Oxford University Press, vol. 36(3), pages 359-380, November.
    7. Xavier Sala-i-Martin & Arvind Subramanian, 2013. "Addressing the Natural Resource Curse: An Illustration from Nigeria," Journal of African Economies, Centre for the Study of African Economies, vol. 22(4), pages 570-615, August.
    8. James G. MacKinnon, 1990. "Critical Values for Cointegration Tests," Working Paper 1227, Economics Department, Queen's University.
    9. Matsen, Egil & Torvik, Ragnar, 2005. "Optimal Dutch disease," Journal of Development Economics, Elsevier, vol. 78(2), pages 494-515, December.
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    Cited by:

    1. Ragna Alstadheim, 2005. "Is the price level in Norway determined by fiscal policy?," Working Paper 2005/5, Norges Bank.
    2. Jair N. Ojeda & Julián A. Parra-Polanía & Carmiña O. Vargas, 2014. "Natural-Resource Booms, Fiscal Rules and Welfare in a Small Open Economy," Borradores de Economia 11132, Banco de la Republica.

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    More about this item

    Keywords

    Natural resources; Dutch disease; real exchange rate.;
    All these keywords.

    JEL classification:

    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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