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Investing Volatile Resource Revenues in Capital‐Scarce Economies
Author(s) -
Richmond Christine,
Yackovlev Irene,
Yang ShuChun S.
Publication year - 2015
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.12099
Subject(s) - economics , revenue , dutch disease , depreciation (economics) , volatility (finance) , public capital , natural resource , investment (military) , resource (disambiguation) , marginal revenue , monetary economics , fiscal policy , macroeconomics , finance , public investment , market economy , exchange rate , capital formation , financial capital , human capital , ecology , computer network , politics , law , political science , computer science , biology
Natural resource revenues are an important financing source for public investment in many developing economies. Investing volatile resource revenues, however, may subject an economy to macroeconomic instability. This paper studies fiscal approaches to investing resource revenues, using A ngola as an example. With spend‐as‐you‐go, resource revenues are spent as received, resulting in little external saving; public investment can be interrupted, driving up the capital depreciation rate and undermining stability. Gradual scaling‐up, instead, allows countries to build up external saving to shield investment from revenue volatility. The framework adopted here can be used as a planning tool to define a medium‐term fiscal strategy.