Managing and Harnessing Volatile Oil Windfalls
38 Pages Posted: 1 Feb 2013
Date Written: November 2012
Abstract
Three funds are necessary to manage an oil windfall: intergenerational, liquidity and investment funds. The optimal liquidity fund is bigger if the windfall lasts longer and oil price volatility, prudence and the GDP share of oil rents are high and productivity growth is low. We apply our theory to the windfalls of Norway, Iraq and Ghana. The optimal size of Ghanas liquidity fund is tiny even with high prudence. Norways liquidity fund is bigger than Ghanas. Iraqs liquidity fund is colossal relative to its intergenerational fund. Only with capital scarcity, part of the windfall should be used for investing to invest. We illustrate how this can speed up the process of development in Ghana despite domestic absorption constraints.
Keywords: economic development, Ghana, inefficiency, intergenerational fund, Iraq, liquidity fund, Norway, oil price volatility, precautionary buffers, public investment, sovereign wealth
JEL Classification: D91, E21, E22, Q32
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Holding International Reserves in an Era of High Capital Mobility
-
International Reserves: Precautionary Versus Mercantilist Views, Theory and Evidence
By Joshua Aizenman and Jaewoo Lee
-
International Reserves: Precautionary Versus Mercantilist Views, Theory and Evidence
By Joshua Aizenman and Jaewoo Lee
-
Seigniorage and Political Instability
By Alex Cukierman, Sebastian Edwards, ...
-
International Reserves: Precautionary vs. Mercantilist Views, Theory and Evidence
By Joshua Aizenman and Jaewoo Lee
-
The High Demand for International Reserves in the Far East: What's Going on?
-
The High Demand for International Reserves in the Far East: What's Going on?
-
The Optimal Level of International Reserves for Emerging Market Countries: Formulas and Applications
By Olivier Jeanne and Romain G. Rancière
-
The Social Cost of Foreign Exchange Reserves
By Dani Rodrik
-
The Social Cost of Foreign Exchange Reserves
By Dani Rodrik