Buoyant Capital Spending and Worries over Real Appreciation: Cold Facts from Algeria

Kangni Kpodar, Boileau Loko and Oumar Diallo
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Boileau Loko: CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique
Oumar Diallo: CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique

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Abstract: The Government of Algeria has pursed a relatively expansionary fiscal policy in recent years, thanks to rising oil prices and revenues. The paper explores the potential effects of such a stance on real exchange rate and uncovers a relatively small appreciating effect of increased government capital expenditure. This is explained by the fact that a significant share of capital spending falls into tradable imported goods. However, the envisaged increase in capital spending, if well designed and implemented, might in the long-run translate into rising operations and maintenance expenditure—mostly nontradable goods—thereby causing a higher real appreciation. This implies that Algeria should carefully consider the implications of its public investment program on recurrent expenditure.

Keywords: Government capital expenditure; real exchange rate; oil (search for similar items in EconPapers)
Date: 2011-01-18
New Economics Papers: this item is included in nep-ara
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Working Paper: Buoyant Capital Spending and Worries over Real Appreciation: Cold Facts from Algeria (2008)
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