Savings and Investment Decisions in Resource-Rich Developing Countries

Many developing countries on Earth are in the throes of a double-bonanza of high prices for their natural resource exports coupled with new discoveries. Over the next decade the potential financial flows from resource exports dwarf aid, remittances, and FDI, providing an unprecedented opportunity for development. This paper derives important policy implications for savings and investment decisions for resource-rich economies. The paper shows the distinctive aspects of savings and investment in resource-rich developing countries related to: (i) rents and the role of government; (ii) the natural resource appropriate savings rate and their role of in achieving income convergence, (iv) increasing domestic investment, their sequencing and composition and (v) managing volatility. Finally, the paper also explains that taking the right decisions is politically difficult and proposes approaches that might bring policy choices closer to the theoretical ideal.