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Resource Windfalls, Optimal Public Investment and Redistribution: The Role of Total Factor Productivity and Administrative Capacity

Author

Listed:
  • Mr. Alan H. Gelb
  • Mr. Arnaud Dupuy
  • Mr. Rabah Arezki
Abstract
This paper studies the optimal public investment decisions in countries experiencing a resource windfall. To do so, we use an augmented version of the Permanent Income framework with public investment faced with adjustment costs capturing the associated administrative capacity as well as government direct transfers. A key assumption is that those adjustment costs rise with the size of the resource windfall. The main results from the analytical model are threefold. First, a larger resource windfall commands a lower level of public capital but a higher level of redistribution through transfers. Second, weaker administrative capacity lowers the increase in optimal public capital following a resource windfall. Third, higher total factor productivity in the non-resource sector reduces the degree of des-investment in public capital commanded by weaker administrative capacity. We further extend our basic model to allow for "investing in investing" - that is public investment in administrative capacity - by endogenizing the adjustment cost in public investment. Results from the numerical simulations suggest, among other things, that a higher initial stock of public administrative "know how" leads to a higher level of optimal public investment following a resource windfall. Implications for policy are discussed.

Suggested Citation

  • Mr. Alan H. Gelb & Mr. Arnaud Dupuy & Mr. Rabah Arezki, 2012. "Resource Windfalls, Optimal Public Investment and Redistribution: The Role of Total Factor Productivity and Administrative Capacity," IMF Working Papers 2012/200, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2012/200
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    References listed on IDEAS

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    Cited by:

    1. Mahsa Jahandideh, 2020. "Resource‐driven victory," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(4), pages 877-898, August.
    2. Mr. Rabah Arezki & Mr. Herbert Lui & Mr. Marc G Quintyn & Mr. Frederik G Toscani, 2012. "Education Attainment in Public Administration Around the World: Evidence from a New Dataset," IMF Working Papers 2012/231, International Monetary Fund.
    3. Go, Delfin S. & Robinson, Sherman & Thierfelder, Karen & Utz, Robert, 2013. "Dutch disease and spending strategies in a resource-rich low-income country -- the case of Niger," Policy Research Working Paper Series 6691, The World Bank.
    4. Alkassoum Sangare, Saadatou & Maisonnave, Helene, 2018. "Mining and petroleum boom and public spending policies in Niger: a dynamic computable general equilibrium analysis," Conference papers 332982, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    5. Cavalcanti, Carlos B. & Marrero, Gustavo A. & Le, Tuan Minh, 2014. "Measuring the impact of debt-financed public investment," Policy Research Working Paper Series 6766, The World Bank.
    6. Shantayanan Devarajan & Marcelo Giugale, 2013. "The Case for Direct Transfers of Resource Revenues in Africa - Working Paper 333," Working Papers 333, Center for Global Development.
    7. Dobronogov, Anton & Gelb, Alan & Saldanha, Fernando Brant, 2014. "How should donors respond to resource windfalls in poor countries ? from aid to insurance," Policy Research Working Paper Series 6952, The World Bank.
    8. Issouf Samaké & Ms. Priscilla S Muthoora & Mr. Bruno Versailles, 2013. "Fiscal Sustainability, Public Investment, and Growth in Natural Resource-Rich, Low-Income Countries: The Case of Cameroon," IMF Working Papers 2013/144, International Monetary Fund.
    9. Go, Delfin & Robinson, Sherman & Thierfelder, Karen & Utz, Robert, 2013. "The Macroeconomic Effects of an Expanding Natural Resource Sector in Niger," Conference papers 332395, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    10. Marcelo M. Giugale & Nga Thi Viet Nguyen, 2018. "Money to the people: a calculation of direct dividend payments in Africa," International Economics and Economic Policy, Springer, vol. 15(1), pages 1-19, January.
    11. Ibrahim D. Raheem & Kazeem O. Isah & Abdulfatai A. Adedeji, 2018. "Inclusive growth, human capital development and natural resource rent in SSA," Economic Change and Restructuring, Springer, vol. 51(1), pages 29-48, February.

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    More about this item

    Keywords

    WP; Resource Windfall; Public Investment; Total Factor Productivity; Administrative Capacity; adjustment cost; unit resource rent; management Index; public capital; Non-resource sector total factor productivity; Public investment spending; Public investment and public-private partnerships (PPP); Natural resources; Stocks; Middle East; East Africa; North Africa;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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