Posted by: mulrickillion | October 13, 2011

Determinants of Non-oil Growth in the CFA-Zone Oil Producing Countries: How do they Differ?

By Alexandra Tabova and Carol Baker

International Monetary Fund (IMF), Working Paper No. 11/233, October 2011 —

Summary: Non-oil growth in the CFA oil exporting countries has been lackluster despite their great natural resource wealth. In this paper we study the key determinants of non-oil growth and explore to what extent these countries differ from countries with comparable levels of development that do not depend on nonrenewable resources. Using a panel of 38 countries comprising LICs and CFA zone oil exporters, we find that while real exchange rate appreciation negatively impacted growth in all countries over the period 1985-2008, what distinguishes the oil producers of the CFA zone is the failure of public and private investment to spur non-oil growth.

[An excerpt from the Working Paper reads]:

Non-oil growth in the CFA oil exporting countries has been lackluster despite their great natural resource wealth. This is perhaps unsurprising given that only a few resource-rich countries have succeeded in diversifying their economies (Coxhead, 2007; Gelb and Grasmann, 2010). This often-cited “resource curse” is frequently attributed to three main factors: Dutch disease stemming from real effective exchange rate appreciation; the high volatility of oil- and mineral-related revenues; and institutional weaknesses, particularly in the areas of governance and transparency.

In this paper we study the key determinants of non-oil growth in the oil producing countries of the CFA zone and explore to what extent these countries differ from countries with comparable levels of development that do not depend on nonrenewable resources. To do this, we extend existing growth models to capture key features of CFA zone oil exporters, namely large development needs, institutional weakness and market imperfections. By incorporating government spending and the efficiency of public goods we derive a tractable general equilibrium model of a small open economy with an oil exporting sector and two non-oil productive sectors in which public investment financed by oil revenue is growth enhancing while institutional weakness and market imperfections lower growth. . . .

>>Read the full Working Paper here (wp11233.pdf).

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