Economic Consequences of Large Extraction Declines: Lessons for the Green Transition

Author/Editor:

Rudolfs Bems ; Lukas Boehnert ; Andrea Pescatori ; Martin Stuermer

Publication Date:

May 8, 2023

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

Limiting climate change requires a 80 percent reduction in fossil fuel extraction until 2050. What are the macroeconomic consequences for fossil fuel producing countries? We identify 35 episodes of persistent, exogenous declines in extraction based on a new data-set for 13 minerals (oil, gas, coal, metals) and 122 countries since 1950. We use local projections to estimate effects on real output as well as the external and the domestic sectors. Declines in extractive activity lead to persistent negative effects on real GDP and the trade balance. The real exchange rate depreciates but not enough to offset the decline in net exports. Effects on low-income countries are significantly larger than on high-income countries. Results suggest that legacy effects of bad institutions could prevent countries from benefiting from lower resource extraction.

Series:

Working Paper No. 2023/097

Frequency:

regular

English

Publication Date:

May 8, 2023

ISBN/ISSN:

9798400241123/1018-5941

Stock No:

WPIEA2023097

Format:

Paper

Pages:

48

Please address any questions about this title to publications@imf.org