Beyond the Curse Policies to Harness the Power of Natural Resources EDITORS Rabah Arezki, Thorvaldur Gylfason, and Amadou Sy INTERNATIONAL MONETARY FUND ©International Monetary Fund. Not for Redistribution © 2011 International Monetary Fund Cataloging-in-Publication Data Beyond the curse : policies to harness the power of natural resources / editors, Rabah Arezki, Thorvaldur Gylfason, and Amadou Sy. – Washington, DC : International Monetary Fund, 2011. p. ; cm. This book is based on a high level seminar on natural resource, finance and development, IMF Institute and Central Bank of Algeria, Algiers, November, 4-5, 2010. Includes bibliographical references. ISBN 978-1-61635-145-8 1. Natural resources. 2. Resource curse. 3. Fiscal policy. 4. Monetary policy. 5. Foreign exchange rates. 6. Diversification in industry. 7. Economic development. 8. Primary commodities. 9. Prices. 10. Exports. 11. Finance. 12. Financial institutions. 13. Sovereign wealth funds. I. Arezki, Rabah. II. Gylfason, Thorvaldur, 1951-. III. Sy, Amadou N. R. IV. International Monetary Fund. HC85.B49 2011 Disclaimer: The views expressed in this book are those of the authors and should not be reported as or attributed to the International Monetary Fund, its Executive Board, or the governments of any of its member countries. Please send orders to: International Monetary Fund, Publication Services P.O. Box 92780, Washington, DC 20090, U.S.A. Tel: (202) 623-7430 Fax: (202) 623-7201 Email: [email protected] Internet: www.imfbookstore.org Cover design: Lai Oy Louie, IMF Multimedia Services Division ©International Monetary Fund. Not for Redistribution Contents Foreword vii Acknowledgments ix Abbreviations and Acronyms xi 1 Overview ............................................................................................................................1 Leslie Lipschitz Part I COMMODITY MARKETS AND THE MACROECONOMY .......................................................5 2 Natural Resource Endowment: A Mixed Blessing? .............................................7 Thorvaldur Gylfason Introduction ...........................................................................................................................................................................................................7 Policy Issues in Natural-Resource-Rich Countries .......................................................................................................................11 Norway and Other Success Stories ......................................................................................................................................................20 From Anecdotes to Empirical Testing .................................................................................................................................................26 Conclusion ...........................................................................................................................................................................................................31 References ............................................................................................................................................................................................................33 3 Primary Commodities: Historical Perspectives and Prospects ...................35 Marian Radetzki Primary Commodities in the Economic Development Process .........................................................................................35 Falling Transport Costs and Globalizing Markets .........................................................................................................................39 The Entry and Exit of the State in the Commodity Sector in the 20th Century ......................................................42 Real Prices: Falling Long-Run Trends and Short-Run Instability .........................................................................................45 Policy Implications for Commodity-Exporting Nations ...........................................................................................................48 References ............................................................................................................................................................................................................50 Part II ECONOMIC DIVERSIFICATION AND THE ROLE OF FINANCE ....................................................53 4 Economic Diversification in Resource-Rich Countries ...................................55 Alan Gelb Introduction ........................................................................................................................................................................................................55 Why Diversify? ....................................................................................................................................................................................................59 The Resource Curse: A Diversification Perspective .....................................................................................................................62 The Examples of Malaysia, Indonesia, Chile, and Dubai ..........................................................................................................69 Some Common Factors in Success ......................................................................................................................................................74 Conclusions .........................................................................................................................................................................................................76 References ............................................................................................................................................................................................................78 iii ©International Monetary Fund. Not for Redistribution iv Contents 5 Finance and Oil: Is There a Resource Curse? ......................................................81 Thorsten Beck Introduction ........................................................................................................................................................................................................81 Finance and Growth: Is There a Natural Resource Discount? ..............................................................................................85 Finance and Natural Resources—Is There a Resource Curse?.............................................................................................90 Banks in Resource-Based Economies ..................................................................................................................................................95 Access to Finance in Resource-Based Economies ......................................................................................................................98 Summary and Policy Implications......................................................................................................................................................103 References .........................................................................................................................................................................................................104 6 The Economics of Sovereign Wealth Funds: Lessons from Norway ...............................................................................................107 Thomas Ekeli and Amadou N.R. Sy Introduction .....................................................................................................................................................................................................107 The Economics of Sovereign Wealth Funds.................................................................................................................................108 The (Long) Road to a Sovereign Wealth Fund............................................................................................................................109 Sovereign Wealth Management..........................................................................................................................................................111 Conclusions and Policy Implications ................................................................................................................................................114 References .........................................................................................................................................................................................................115 Part III FISCAL POLICY .............................................................................117 7 Primary Commodity Price Series: Lessons for Policymakers in Resource-Rich Countries ....................................................................................119 Kaddour Hadri Introduction .....................................................................................................................................................................................................119 Empirical Evidence .......................................................................................................................................................................................122 What Can Policymakers Do to Counter These Three Challenges? ................................................................................127