Resource Windfalls, Optimal Public Investment and Redistribution: The Role of Total Factor Productivity and Administrative Capacity
IMF Working Papers, August 1, 2012
Source details
- Canonical URL
- Resource Windfalls, Optimal Public Investment and Redistribution: The Role of Total Factor Productivity and Administrative Capacity
Other formats
Bibliographic details
- Authors: Alan H. Gelb, Arnaud Dupuy, Rabah Arezki
- Published: August 1, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475505504.001
Summary of approach and model
- Uses an augmented version of the Permanent Income framework with public investment faced with adjustment costs that capture administrative capacity and government direct transfers.
- Key assumption: adjustment costs rise with the size of the resource windfall.
- Analytical focus: optimal public investment decisions in countries experiencing a resource windfall.
Main analytical results
- A larger resource windfall commands:
- a lower level of public capital.
- a higher level of redistribution through transfers.
- Weaker administrative capacity:
- lowers the increase in optimal public capital following a resource windfall.
- Higher total factor productivity (TFP) in the non-resource sector:
- reduces the degree of dis-investment in public capital that is commanded by weaker administrative capacity.
Model extension: "investing in investing" (endogenizing adjustment costs)
- The basic model is extended to allow public investment in administrative capacity by endogenizing the adjustment cost in public investment.
- Numerical simulation results:
- A higher initial stock of public administrative "know how" leads to a higher level of optimal public investment following a resource windfall.
- Implicit scenario comparisons in the extension:
- Varying initial administrative capacity alters optimal allocation between public capital accumulation and transfers after a windfall.
- Higher non-resource sector TFP mitigates the negative impact of weak administrative capacity on public capital accumulation.
Policy implications (as discussed)
- Resource windfalls should be managed recognizing trade-offs between public capital accumulation and redistribution via transfers.
- Strengthening administrative capacity can increase the optimal scale of public investment following a windfall.
- Investing in administrative capacity ("investing in investing") can be welfare-enhancing by lowering adjustment costs and supporting higher public capital accumulation.
- Enhancing non-resource sector total factor productivity lessens the tendency to dis-invest in public capital when administrative capacity is weak.
Key statistics and publication metadata
- Pages: 34
- Volume: 2012
- Issue: 200
- Series: Working Paper No. 2012/200
- DOI: https://doi.org/10.5089/9781475505504.001
- Stock No: WPIEA2012200
- ISBN: 9781475505504
- ISSN: 1018-5941
- Date: August 1, 2012
- Authors: Alan H. Gelb, Arnaud Dupuy, Rabah Arezki
- Subject keywords: Environment, Expenditure, Financial institutions, Natural resources, Production, Public investment and public-private partnerships (PPP), Public investment spending, Stocks, Total factor productivity
- Provided keywords/tags: adjustment cost, Administrative Capacity, East Africa, management Index, Middle East, Natural resources, Non-resource sector total factor productivity, North Africa, public capital, Public Investment, Public investment and public-private partnerships (PPP), Public investment spending, Resource Windfall, Stocks, Total Factor Productivity, unit resource rent, WP
Source: IMF Working Paper No. 2012/200 (August 1, 2012).
Content in this bundle
- _wp12200 - Appendix 2: Parametric Specification of the Extended Model