The Basilicata Wealth Fund: resource policy and long-run economic development in Southern Italy

Iacono, Roberto (2015): The Basilicata Wealth Fund: resource policy and long-run economic development in Southern Italy.

Abstract

This paper contributes to the growing political economy literature of within-country natural resources management, by proposing a new resource policy for the oil-rich southern Italian region of Basilicata. The policy proposal is to establish a (regional) wealth fund in which all the royalty revenues from non-renewable natural resource exploitation in Basilicata would be stored and fully converted into low-risk financial assets. The scope is to give priority to long-run investments as to better exploit revenues from large-scale extraction of natural capital. Establishing a wealth fund at the regional sub-national level is a novel approach that can be applied to other resource-rich regions in the world. I label the fund as the Basilicata Wealth Fund (BWF). The BWF would be a regionally owned investment fund, however independently administered from national authorities (for instance, as an independent legal entity under the jurisdiction of the Bank of Italy). In addition, the paper posits a transparent and clear-cut spending fiscal rule in order to let regional authorities use the resource revenues to finance economic policy. The clear advantage from the BWF would be the stronger focus on long-run economic development and the higher accountability, hence avoiding misuse of resource revenues for myopic fiscal spending.

• Item Type: MPRA Paper
• Language: English
• Keywords: Exhaustible natural resources; Sovereign Wealth Fund; Regional economy; Long-run economic development; Basilicata.
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture ; Natural Resources ; Energy ; Environment ; Other Primary Products; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q32 - Exhaustible Resources and Economic Development; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R11 - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R5 - Regional Government Analysis > R58 - Regional Development Planning and Policy

References

Ang A., The four benchmarks of sovereign wealth funds, Available at SSRN 1680485, (2010).

Biasi P., The genuine savings rate at the sub-national level in Italy, Mimeo, (2015).

Braun-Munzinger C., Regionally owned funds: mechanisms for delivery of EU Aid for Trade in ACP regions?, European Centre for Development Policy Management, Discussion paper 90, April, (2009).

Brollo F., T. Nannicini, R. Perotti, and G. Tabellini, The political resource curse. American Economic Review 103(5), (2013) 1759--1796. doi:10.1257/aer.103.5.1759

Caner M., T. Grennes, Sovereign Wealth Funds: The Norwegian Experience, The World Economy 33(4), (2010) 597-614. doi:10.1111/j.1467-9701.2009.01235.x

Cust J., S. Poelhekke, The local economic impacts of natural resource extraction, Annual Review of Resource Economics, (2015). doi:10.1146/annurev-resource-100814-125106

Das U.S., Mulder C.B., Sy A.N.R., Lu Y., Setting up a sovereign wealth fund: some policy and operational considerations, IMF working paper No. 09/179, (2009).

Deacon R.T., The political economy of the natural resource curse: a survey of theory and evidence. Foundations and Trends in Microeconomics 7(2), (2012) 111-208. http://dx.doi.org/10.1561/0700000042.

Harding T., F. van der Ploeg, Official forecasts and management of oil windfalls, International Tax and Public Finance 20(5), (2013) 827-866.

Holden S., Avoiding the resource curse the case Norway, Energy Policy 63, (2013) 870-876.

Iacono R., A comparison of fiscal rules for resource-rich economies, Working Paper Series No.3/2012, Department of Economics, NTNU, (2012).

Iacono R., No blessing, no curse? On the benefits of being a resource-rich southern region of Italy, Research in Economics, (2015). doi:10.1016/j.rie.2015.03.003

Marcel, M., Tokman, M., Valdés, R. and Benavides, P., Balance Estructural: La Base de la Nueva Regla de Política Fiscal Chilena, Economía Chilena 4(3), (2001) 5-27.

Percoco M., Attività estrattive e creazione di nuove imprese in Basilicata, Rivista economica del Mezzogiorno 4, (2012) 881-898.

Rocchi B., Landi C., Stefani G., Romano S. and Cozzi M., Escaping the resource curse in regional development: a case-study on the allocation of oil royalties, International Journal of Sustainable Development 18, (2015) 115-138.