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Should Developing Countries Constrain Resource-Income Spending? A Quantitative Analysis of Oil Income in Uganda
Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
Number of Authors: 4
2017 (English)In: Energy Journal, ISSN 0195-6574, E-ISSN 1944-9089, Vol. 38, no 1, 103-131 p.Article in journal (Refereed) Published
Abstract [en]

A large increase in government spending following resource discoveries often entails political risks, inefficient investments and increased volatility. Setting up a sovereign wealth fund with a clear spending constraint may decrease these risks. On the other hand, in a capital scarce developing economy with limited access to international borrowing, such a spending constraint may lower welfare by reducing domestic capital accumulation and hindering consumption increases for the currently poor. These two contradicting considerations pose a dilemma for policy makers in deciding whether to set up a sovereign wealth fund with a spending constraint. Using Uganda's recent oil discovery as a case study, this paper presents a quantitative macroeconomic analysis and examines the potential loss of constraining spending through a sovereign wealth fund with a simple spending rule. We find that the loss is relatively low and unlikely to dominate the political risks associated with increased oil spending. Thus, such a spending constraint appears well warranted.

Place, publisher, year, edition, pages
2017. Vol. 38, no 1, 103-131 p.
Keyword [en]
Economic Development, Macroeconomic Dynamics, Oil, Resource Curse, Sovereign Wealth Fund, Uganda
National Category
Economics and Business Environmental Engineering Social and Economic Geography
Identifiers
URN: urn:nbn:se:su:diva-139374DOI: 10.5547/01956574.38.1.jhasISI: 000390615100005OAI: oai:DiVA.org:su-139374DiVA: diva2:1072391
Available from: 2017-02-07 Created: 2017-02-06 Last updated: 2017-02-07Bibliographically approved

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