Oil Exporters' Dilemma: How Much to Save and How Much to Invest
IMF Working Papers, January 1, 2012
Source details
- Canonical URL
- Oil Exporters' Dilemma: How Much to Save and How Much to Invest
Other formats
Bibliographic details
- Authors: Reda Cherif, Fuad Hasanov
- Published: January 1, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475502459.001
Summary and key findings
- Policymakers in oil-exporting countries face allocation of oil revenues among consumption, saving, and investment under high income volatility.
- The paper studies this allocation problem using a precautionary saving and investment model under uncertainty.
- Precautionary saving is sizable, consistent with data in the 2000s.
- The marginal propensity to consume out of permanent shocks is below one, in stark contrast to the predictions of the perfect foresight model.
- The optimal investment rate is high if productivity in the tradable sector is high enough.
Model and analytical approach
- Framework: precautionary saving and investment model under uncertainty.
- Comparison: outcomes contrasted with the perfect foresight model, highlighting differences in precautionary behavior and marginal propensities.
Policy implications and recommendations
- Maintain sizable precautionary savings in the presence of oil revenue volatility.
- Support higher investment rates when tradable-sector productivity is sufficiently high to justify increased capital allocation from oil revenues.
- Balance between consumption, saving, and investment should account for uncertainty-driven precautionary motives rather than relying on perfect-foresight benchmarks.