General Equilibrium Resource Elasticity in an Open Resource-Abundant Economy

Aghababaei, Mohammad Ebrahim (2019): General Equilibrium Resource Elasticity in an Open Resource-Abundant Economy.

Abstract

This study investigates the sensitivity of macro and sectoral variables to natural resource revenues in a resource-abundant developing country. Here, different transmission mechanisms are in effect. The paper considers the exchange rate channel, financial sector channel, capital flow channel, public sector channel, and resource reallocation channel. I employ a large scale real-financial general equilibrium model with especial focus on fossil fuel energy, natural resources, financial sector interactions, inter-sectoral linkages, and public sector responses. The model is used to predict the likely changes in oil and gas exports in Iran. It causes more oil exports but at lower international prices. Our comparative static analysis indicates that resource elasticity for GDP is from +0.10 to +0.13; for public services is from +0.16 to +0.27; for import is from +0.42 to +0.45; for mineral extraction is from -0.50 to -0.10, and for the manufacturing sector is from -0.08 to -0.06. The simulation reveals extraction competition among natural resources.

• Item Type: MPRA Paper
• Language: English
• Keywords: General equilibrium, natural resources, Dutch Disease, trade, non-tariff barriers
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C68 - Computable General Equilibrium Models; F - International Economics > F1 - Trade > F11 - Neoclassical Models of Trade; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture ; Natural Resources ; Energy ; Environment ; Other Primary Products; O - Economic Development, Innovation, Technological Change, and Growth > O2 - Development Planning and Policy > O24 - Trade Policy ; Factor Movement Policy ; Foreign Exchange Policy; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q33 - Resource Booms

References

Aguiar, A., Narayanan, B., & McDougall, R. (2016). An Overview of the GTAP 9 Data Base. Journal of Global Economic Analysis, 1(1), 181-208.

Corden, M. (1984). Booming Sector and Dutch Disease Economics: Survey and Consolidation. Oxford Economic Papers, 36, (3), 359-380.

Corden, W. M., & Neary, J. P. (1982). Booming sector and de-industrialisation in a small open economy. The economic journal, 825-848.

Fardmanesh, M. (1991). Dutch disease economics and oil syndrome: An empirical study. World Development, 19(6), 711-717.

Gahvari, F., & Taheripour, F. (2011). Fiscal reforms in general equilibrium: theory and an application to the subsidy debate in Iran. The BE Journal of Economic Analysis & Policy, 11(1).

Gelb, A (1988). Oil Windfall: Blessing or Curse. Oxford University Press: New York.

Gharibnavaz, M. R., & Waschik, R. (2015). Food and energy subsidy reforms in Iran: A general equilibrium analysis. Journal of Policy Modeling, 37(5), 726–741.

Gylfason, T. (2001), Nature, Power and Growth. Scottish Journal of Political Economy, 48: 558–588.

Haqiqi, I., & Bahador, A. (2015). Investigating Economic Effects of Oil Export Reduction: A Financial Computable General Equilibrium Approach. Journal of Monetary and Banking Research , Vol. 24, No. 1 (2015): pp. 251-284.

Haqiqi, I., & Bahalou Horeh, M. (2013). Macroeconomic Impacts of Export Barriers in a Dynamic CGE Model. Journal of Money and Economy, 8(3), 117–150.

Haqiqi, I., & Bahalou, M. (2015). A General Equilibrium Analysis of Unskilled Labor Entry and Skilled Labor Exit in Iran. The Economic Research , Vol. 3, No. 15 (23 October 2015): pp. 67-89.

Haqiqi, I., & Mirian, N. (2015). A Financial General Equilibrium Model for Assessment of Financial Sector Policies in Developing Countries. Retrieved from University Library of Munich, Germany website: https://ideas.repec.org/p/pra/mprapa/95841.html

Haqiqi, I., & Mortazavi Kakhaki, M. (2012). The Impact of Redistribution of Opportunities on Income Inequality: A CGE Approach. Journal of Economic Modeling Research , Vol. 2, No. 7 (2012): pp. 51-73.

Haqiqi, I., Aghanazari, H., & Sharzei, G. (2013). Natural Resources Revenue Allocation: A Dynamic General Equilibrium Approach. Journal of Economic Modeling Research , Vol. 3, No. 11 (2013): pp. 49-76.

Haqiqi, I., Manzoor, D., & Aghababaei, M. (2013). Impacts of Electricity Efficiency Improvements on Factors Market: A Computable General Equilibrium Approach. Journal of Planning and Budgeting , Vol. 4, No. 17 (2013): pp. 25-44.

Hartwick, J. M. (1977). Intergenerational equity and the investing of rents from exhaustible resources. The American economic review, 972-974.

Hertel, T.W., (1997). Global Trade Analysis: Modeling and Applications. Cambridge University Press.

Jafari, S., Bakhshi Dastjerdi, R., & Moosavi Mohseni, R. (2014). Studying the Effects of Non-Oil Exports on Targeted Economic Growth in Iranian 5th Development Plan: A Computable General Equilibrium Approach. Iranian Journal of Economic Studies, 3(1), 111–130.

Jensen, J., & Tarr, D. (2003). Trade, exchange rate, and energy pricing reform in Iran: Potentially large efficiency effects and gains to the poor. Review of Development Economics, 7(4), 543–562.

Lanz, B., & Rutherford, T. (2016). GTAPinGAMS: Multiregional and Small Open Economy Models. Journal of Global Economic Analysis, 1(2), 1-77.

Leite, C. A., & Weidmann, J. (1999). Does Mother Nature corrupt? Natural resources, corruption, and economic growth. Natural Resources, Corruption, and Economic Growth (June 1999). IMF Working Paper, (99/85).

Manzoor, D., & Haqiqi, I. (2012). Impact of Energy Price Reform on Environmental Emissions; A Computable General Equilibrium Approach. Journal of Environmental Studies, Volume 37 , Number 60; Page(s) 1 to 12.

Manzoor, D., & Haqiqi, I. (2013). Impacts of Energy Price Increase and Cash Subsidy Payments on Energy Demand. Journal of Trade Studies , Vol. 17, No. 67 (2013): pp. 101-124.

Manzoor, D., Aghababaei, M., & Haqiqi, I. (2011). Rebound Effects Analysis of Electricity Efficiency Improvements in Iran: A Computable General Equilibrium Approach. Quarterly Energy Economics Review , Vol. 8, No. 28 (2011): pp. 1-23.

Manzoor, D., Haqiqi, I., & Aghababaei, M. (2013). Economic Impacts of Investment in the Electricity Industry: A CGE Comparison of Regulated and Free Markets. Quarterly Energy Economics Review , Vol. 9, No. 35 (2013): pp. 47-74.

Manzoor, D., Shahmoradi, A., & Haqiqi, I. (2009). An Analysis of Energy Price Reform: A CGE Approach. IEW. Presented at the International Energy Workshop, Venice, Italy. Retrieved from http://internationalenergyworkshop.org/iew2009/speakersdocs/Manzoor-et-al_AnAnalysisOfEnergyPriceReform.pdf

Manzoor, D., Shahmoradi, A., & Haqiqi, I. (2010). An Assessment of the Impact of Reducing Implicit and Explicit Energy Subsidies in Iran; Using a Computable General Equilibrium Model Based on a Modified Micro Consistent Matrix. Quarterly Energy Economics Review , Vol. 7, No. 26 (2010): pp. 21-54.

Manzoor, D., Shahmoradi, A., & Haqiqi, I. (2012). An analysis of energy price reform: a CGE approach. OPEC Energy Review, 36(1), 35–54.

Robinson, J. A., & Torvik, R. (2005). White elephants. Journal of Public Economics, 89(2), 197-210.

Robinson, J. A., Torvik, R., & Verdier, T. (2014). Political foundations of the resource curse: A simplification and a comment. Journal of Development Economics, 106, 194-198.

Rutherford, T. F. (1999). Applied general equilibrium modeling with MPSGE as a GAMS subsystem: An overview of the modeling framework and syntax. Computational Economics, 14(1-2), 1-46.

Sachs, J. & Warner, A. (2001). The Curse of Natural Resources. European Economic Review, 45, (4-6), 827-838.

Shahmoradi, A., Haqiqi, I., & Zahedi, R. (2011). Impact Analysis of Energy Price Reform and Cash Subsidy Payment in Iran: A CGE Approach. Quarterly Journal of Economic Research and Policy , Vol. 19, No. 57 (2011): pp. 5-30.

van der Mensbrugghe, D. (2008). The environmental impact and sustainability applied general equilibrium (ENVISAGE) model. The World Bank, January.

World Bank (1997). Gabon: Poverty in a Rent-Based Economy. Report No. 16333-CA, Human Development Group, Washington DC, 1997.