City Research Online

Abstract

This thesis investigates the impact of natural resources on resource-rich countries and assesses natural resources’ spill-over effect in various directions: national economic growth, the financial sector, and regional growth.

The first paper examines the existence of a financial resource curse in resource-rich countries. It explores the importance of financial development associated with the challenges induced by resource wealth. It also studies whether both resource abundance and reliance have a negative impact on financial development, liberalisation, and reforms in resource-rich countries. It is built on a balanced panel dataset with a cross-sectional dimension of 90 economies that includes both resource-rich and resource-scarce countries and a time dimension of all years from 1970 to 2016. It uses the Two-Stage Least Squares (2-SLS). The 2-SLS instrument built is based on the variation of world prices and their volatility, as well as the specific share of every natural resource for each country. The paper’s results show that the existence of resource hinders financial liberalisation and that financial reforms have a lower impact when associated with resource abundance. The paper concludes the existence of a resource curse in resource-rich countries.

The second chapter demonstrates the effectiveness of a sovereign wealth fund against the Dutch Disease. Sovereign Wealth Funds (SWF) are government owned investment funds which are formed usually out of the surplus reserves (e.g., foreign exchange reserves or reserves comprising natural resource export revenues). Three categories of SWF exist, namely stabilisation, savings, and financing. Funds that aim the stabilisation are defined by a price- or revenue-reliant deposit and/or withdrawal rules (such as Algeria, Russia, Mexico, and Venezuela). Saving funds are funds where a predetermined part of total revenues is accumulated in the fund (such Equatorial Guinea’s Fund for Future Generations and Kuwait). Additionally, financing funds are funds for which the accumulation rule is directly linked to the budget’s non-oil deficit (Norway). This chapter is based on a novel feature in a paper by Hansen and Gross (2018) that incorporates both exploration and depletion of the natural resource (Iron Ore), a feature that has been disregarded in most DSGE papers but which appropriately depicts the transmission channels of the commodity price changes. The model closely follows Hansen and Gross (2018) and explores the impact of implementing a resource-based SWF in Australia. The results show that, following a commodity price shock, the fund has a significant impact in stabilising the responses of key macroeconomic variables, such as exchange rate and inflation. Regarding the optimal tax regime rules, we also find that an ad-valorem royalty (percentage tax on revenue) is efficient in securing a continual stream of returns from the resources sector compared to a rent and reserves tax.

The last chapter of the thesis adds to the literature through a discussion of income spill-overs between resource-rich and resource-scarce Australian Local Government Areas (LGAs). Because the impact of mining expansion on a regional scale might be more complicated to discern compared to the national macroeconomic assessment of the natural resources (Australia is a federation comprising 6 states and 2 self-governing territories), two main estimations are employed: a difference-in-difference and a treatment effect to investigate the impact of mining on the LGA, and spatial regressions to assess the impact on the neighbouring LGAs. The paper is built on an original dataset that combines Australian spatial boundaries data for LGAs, Australian mines data and Australian census data from 2006 to 2016. The difference-in-difference results revealed that LGAs without operating mines have lower income compared to areas that enjoy operating mines. Results showed that, in terms of spatial regression, the mining sector has a positive effect on employment and income in rich LGAs and in neighbouring areas. Mining activities have substantial direct contributions in adjacent regions of Australia that reinforce their economic growth.

Publication Type:	Thesis (Doctoral)
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HC Economic History and Conditions
Departments:	School of Policy & Global Affairs > Economics School of Policy & Global Affairs > School of Policy & Global Affairs Doctoral Theses Doctoral Theses

Export

Downloads