Managing Resource Revenues in Developing

Jan 2009 | 15

Authors: Paul Collier, Anthony Venables, Rick Van der Ploeg Michael Spence

This paper addresses the efficient management of natural resource revenues in capitalscarce developing economies. We depart from usual prescriptions based on the permanent income hypothesis and argue that capital-scarce countries should prioritise domestic investment. Since revenue streams are highly volatile governments should protect consumption from shocks by increasing it only cautiously. Volatility in domestic investment can be moderated by a buffer of international liquidity, but it is also important to structure investment processes to be able to cope efficiently with substantial fluctuations. To date, most of the resource-rich countries of Africa have not had investment rates commensurate with their rate of resource extraction.

JEL Codes: D60, E21, E62, F34, H00, Q33

Keywords: windfall revenue, permanent income, liquidity constraints, capital scarcity, buffer stovcks, volatility, commodity prices

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