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sensibly invest in the domestic economy. However, fear of the fund being raided by political
rivals can induce a sub-optimal political bias towards too much partisan, illiquid investment.
An interesting option is to change the constitution to guarantee that resource revenues
are handed to the public. The government has to subsequently tax its citizens to finance its
spending programmes. The advantage is that the burden of proof for spending resource
revenues is with the government. Most important is for countries to learn from the US history
and adopt an optimistic, forward-looking approach to technological innovation in resource
exploration and the search for new reserves. Predatory governments induce mining companies
to be less transparent about their natural resource revenues and become less efficient.22
The analysis of resource rich countries draws on macroeconomics, public finance,
public policy, international economics, resource economics, economic history and applied
econometrics. It also benefits from collaboration with political scientists and historians. More
research needs to be directed at the changing role of institutions throughout history and in
particular to understand why the resource curse seems to be something of the last four or five
decades whereas before natural resources were harnessed to promote growth. Also, future
work should apply the insights from contract theory to design good incentive-compatible
contracts between governments and exploration companies. Future research should also be
directed at appropriate design of auctioning mineral rights. Work is also needed on the
question of whether resource rich countries have different saving patterns, e.g., in world
financial markets (“petrodollars”) rather than in domestic productive capital, and on how this
might affect their rate of economic growth if reserves are privately owned. The answers
should be contrasted with the situation where reserves are publicly owned and managed by
politicians who may be voted out of office soon. The answers will undoubtedly depend on
whether there is presidential or a parliamentary system. Future research should tackle these
questions with rich political economy models.
The wide diversity in experiences of countries with substantial natural resources
means that comparative analysis and exchange of experiences of managing resource rich
economies could be very fruitful, and that real progress can be made in advancing the plight
of poor countries with abundant natural resources. Future empirical work should move from
cross-section to panel-data regressions to overcome problems of omitted variable bias and to
allow for the changing quality of institutions (see IMF, 2005). At the same time, detailed
country studies and quasi-experimental studies are necessary as often the devil is in the detail
22 Using a panel of 72 industries from 51 countries over 16 years, the negative effect of expropriation
risk on corporate transparency appears to be strongest for industries whose profits are highly correlated
with oil prices and transparency is lower if oil prices are high and property rights are bad (Durnev and
Guriev, 2007). Lack of transparency may lead oil-rich countries to over-report reserves to raise
expected future supply, discourage rival development of oil substitutes and thus improve future market
conditions (Sauré, 2008).