Economic Consequences of Large Extraction Declines: Lessons for the Green Transition

Rudolfs Bems, Lukas Boehnert, Andrea Pescatori and Martin Stuermer

No 2023/097, IMF Working Papers from International Monetary Fund

Abstract: Limiting climate change requires a 80 percent reduction in fossil fuel extraction until 2050. What are the macroeconomic consequences for fossil fuel producing countries? We identify 35 episodes of persistent, exogenous declines in extraction based on a new data-set for 13 minerals (oil, gas, coal, metals) and 122 countries since 1950. We use local projections to estimate effects on real output as well as the external and the domestic sectors. Declines in extractive activity lead to persistent negative effects on real GDP and the trade balance. The real exchange rate depreciates but not enough to offset the decline in net exports. Effects on low-income countries are significantly larger than on high-income countries. Results suggest that legacy effects of bad institutions could prevent countries from benefiting from lower resource extraction.

Keywords: Resource-rich countries; energy transition; fossil fuels; macroeconomics; development; climate policies; legacy effect; limiting climate change; commodity price data; aggregate output; interaction term; low income; real GDP response; open economy; Mining sector; Non-renewable resources; Consumption; Manufacturing; Global (search for similar items in EconPapers)
Pages: 48
Date: 2023-05-08
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