Current account norms in natural resource rich and capital scarce economies

Juliana D. Araujo, Bin Grace Li, Marcos Poplawski-Ribeiro and Luis-Felipe Zanna

Journal of Development Economics, 2016, vol. 120, issue C, 144-156

Abstract: The permanent income hypothesis implies that frictionless open economies with exhaustible natural resources should save abroad most of their resource windfalls and, therefore, feature current account surpluses. Resource rich developing countries (RRDCs), on the other hand, face substantial development needs and tight external borrowing constraints. By relaxing these constraints and providing a key financing source for public investment, resource windfalls might then be associated with current account deficits or at least low surpluses. In this paper, we develop a neoclassical model with private and public investment and several pervasive features in RRDCs, including absorptive capacity constraints, inefficiencies in investment, borrowing constraints, and capital scarcity. We use the model to study the role of investment and these frictions in shaping the current account dynamics under windfalls. Since consumption and investment decisions are optimal, the model also serves to analyze current account norms (benchmarks). We apply the model to the Economic and Monetary Community of Central Africa and discuss how our results can be used to inform external sustainability analyses in RRDCs.

Keywords: Current account; External sustainability; Developing economies (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304387815001169
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Current Account Norms in Natural Resource Rich and Capital Scarce Economies (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:120:y:2016:i:c:p:144-156

DOI: 10.1016/j.jdeveco.2015.10.005

Access Statistics for this article

Journal of Development Economics is currently edited by M. R. Rosenzweig

More articles in Journal of Development Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().