Policy advice for countries managing oil and gas windfalls is typically to smooth consumption boosts by borrowing on international capital markets pre-windfall, repaying the debt and accumulating assets in a sovereign wealth fund during the windfall, and withdrawing from that fund when the windfall ends. This column outlines various reasons why this approach can be disastrous for developing countries, and also considers the best response to a commodity price crash.
Rick van der Ploeg, 24 December 2016
Ashoka Mody, 18 November 2016
Between the first quarter of 2013 and the end of 2015, London property prices rose rapidly, the exchange rate appreciated, and the current account deficit widened. This column argues that the rise of the pound was in fact a financial bubble, riding on a property price-exchange rate carry trade.This unsustainable bubble was deflated by Brexit.
Mouhamadou Sy, 09 November 2015
From the introduction of the euro in 1999 to the Greek crisis in 2010, the Eurozone witnessed external imbalances between countries at its core and those at its periphery. These imbalances have been attributed either to differences in competitiveness or to the effect of financial integration. This column argues that in order to understand the imbalances within the Eurozone, it is necessary to consider credit costs and capital flows. The lower real cost of credit for high-inflation countries must be taken into account, as well as the inflow of capital to the non-tradable sector that this implies. Monetary policy cannot be conducted in a ‘one size fits all’ manner.
Otaviano Canuto, Matheus Cavallari, 12 October 2012
Using data series recently released by the World Bank (2011) on natural capital and other forms of countries’ wealth, this column revisits some of the conclusions reached in the literature on the relationship between natural resource abundance and income levels. The findings support the assertion that there is no clear deterministic evidence of natural resource abundance as a curse or a blessing; therefore, the effect on a country depends on other determinants.
Joshua Aizenman, Daniel Riera-Crichton, Sebastian Edwards, 14 January 2012
Last year’s surge in commodity prices was a reminder, if we needed one, of the problems caused by terms-of-trade volatility in emerging economies. This column looks at the real exchange rate adjustments to commodity terms-of-trade shocks in the region exposed to the highest volatility – Latin America. It finds that active reserve management not only lowers the short-run impact of shocks, but also substantially reduces real exchange rate volatility.
Antonio Cabrales, Esther Hauk, 17 June 2011
The natural-resource curse is now a staple in the development economist’s diet. Natural resources have tended to lead to lower economic growth, except in democratic countries or those with robust institutions. This column presents a political economy model to explain this phenomenon, focusing on the threat of revolutions.
Nicolas Magud, Sebastián Sosa, 15 March 2011
In the 1960s, the Netherlands discovered natural gas in the North Sea. Yet as its wealth increased, so did the value of its currency. Exports fell and the phrase “Dutch disease” was born. This column reviews the literature and finds no evidence that the Dutch disease actually reduces overall economic growth.
Rick van der Ploeg, Anthony Venables, 01 November 2010
Dutch disease symptoms often plague economies that experience surges in foreign exchange due to natural resource or aid income. Discussion Paper 8086 analyses how an economy's capacity for absorbing capital determines the incidence and extent of Dutch disease.
Ekaterina Vostroknutova, Milan Brahmbhatt, Otaviano Canuto, 21 June 2010
The recent boom in primary commodity prices has once more stimulated interest in the issue of “Dutch Disease” – the changes in a country’s structure of production expected after a favourable shock such as a large natural resource discovery. This column examines the implications for welfare and some policy options for resource-rich countries.