Essays on Economic Policies for Resource-Rich Developing Economies

Abstract

This thesis focuses on one broad question: How can resource-rich developing countries better manage their economies? We approach this question from different perspectives. First, in Chapter 1, we start by trying to understand the changing geography of resource dependence in the world, and some basic facts about commodity dependence in developing economies with special emphasis on African economies. In Chapter 2, we examine the extent to which commodity price fluctuations matter for monetary and fiscal policy formulation using Markov mixture specifications of monetary and fiscal policy rules, stylized to account for commodity price slacks, and estimated using specifically designed Bayesian techniques. The results show that policy authorities indeed respond to commodity price slacks, but with varying degrees, depending on the policy regime in place and the country under investigation. Furthermore, policy is characterized by distinctive episodes of active and passive policy regimes, driven by the response of monetary policy to inflation and the response of fiscal policy to past government debt. There is no evidence of policy synchronization in the countries we investigate. Moreover, for most countries in our sample, policy responses have been procyclical. In Chapter 3, we examine more general issues about macroeconomic management options in resource-rich developing economies. Specifically, we consider the investment requirement to move up the income ladder, the different financing option, and their implications for macroeconomic stability and debt sustainability, the implications of improvements in public sector efficiency, and the options and implications of different fiscal adjustment strategies. We address these issues using a structurally consistent dynamic stochastic general equilibrium (DSGE) model, stylized to account for the unique structural characteristics of resource-rich developing economies. Although we present results that have generalizable implications, the policy recommendations can only be based on country-specific circumstances. In Chapter 4, we emphasise the implications of alternative monetary policy options in response to fiscal indiscipline using a DSGE model calibrated to the Nigerian economy. Three alternative monetary policy regimes are considered: a flexible exchange rate regime, a crawling peg, and a money growth target. The results show that the macroeconomic responses to these monetary policy regimes depend on other auxiliary policies of the central bank, such as sterilization policy, foreign reserve accumulation, and open-market operations. Overall, in welfare terms, a flexible exchange rate regime delivers the best outcome.

Date of Award	31 Dec 2017
Original language	English
Awarding Institution	The University of Manchester
Supervisor	Kyriakos Neanidis (Supervisor) & Paul Middleditch (Supervisor)