Natural Resources: Curse or Blessing?

36

On the efficient max-min path oil exporters consume the full marginal product of
their human capital plus their oil rents, but consume only a fraction of the marginal product of
physical capital and the remainder is used to accumulate national wealth to compensate for
the decreasing rate of return on capital. This fraction equals one minus the ratio of the share of
resource rents to the share of capital income in value added. Oil importers consume less, since
they have no oil rents. If oil exporters owned all physical capital, they would be investing all
oil rents in physical capital. They would then use all natural resource rents for consumption
and run a foreign financial debt. Oil has no marginal productivity as a stock, but oil exporters
can consume a fraction of the capital gains. Oil exporters can thus indefinitely sustain positive
consumption by consuming only a fraction of their resource rents, especially if these are large
relative to capital income. Since the Hotelling rule implies that oil exporters enjoy a growing
income from oil revenues over time, they need to save less than the Hartwick rule to keep
consumption constant. Conversely, oil importers need to save more to afford the increasing
cost of oil imports and sustain a constant level of consumption. Resource rich economies thus
sustain consumption by consuming a fraction of their marginal resource rents. Alas, no
empirical tests of this proposition are available yet.

4.4. Fractionalization, voracious depletion, excessive investment and genuine saving

Section 4.3 advanced the hypothesis that resource rich economies may not save all of their
resource rents in anticipation of better times (e.g., higher rate of increase in the prices for its
resource products or ongoing technical progress in resource extraction). An alternative
hypothesis is that resource rich countries have to contend with rival factions competing for
natural resource rents. The modern political economy of macroeconomics literature, surveyed
in Persson and Tabellini (2000), abstracts from the intertemporal aspects of natural resource
depletion, but is of obvious relevance to the crucial question of why countries seem to be
impatient and do not reinvest all their resource rents. This literature highlights deficit biases in
the absence of a strong minister of finance due to government debt being a common pool
(Velasco, 1999), debt biases if political parties have partisan preferences over public goods
and the probability of removing the government from office is high (Alesina and Tabellini,
1989), and delayed stabilization resulting from different groups in a ‘war of attrition’
attempting to shift the burden of higher taxes or spending cuts to other groups (Alesina and
Drazen, 1991). A common insight of this literature is that the rate of discount used by
politicians may be higher than the rate of interest by, for example, the probability of being
removed from office. Indeed, if a faction worries it may not be in office in the near future, it
will extract natural resources much faster than is socially optimal and will borrow against
future resource income (or accumulate less assets than is socially optimal) in order to gain at
the expense of future successors. This could show up as capital flight and higher private

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