A Simple Model of Internal and External Balance for Resource-Rich Developing Countries
Publication | May 2022
The working paper examines how government take, which is the ratio of fiscal resource revenue to resource output, is an important determinant of internal and external balance in resource-rich developing countries (RRDCs).
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In the study, a simple theoretical model of internal and external balance incorporates the key features of RRDCs. It predicts that a fall in government take depreciates the equilibrium real exchange rate and lowers equilibrium absorption. The study looks into the need for RRDCs to convert vast natural resources into sustainable economic development, considering the impact of macroeconomic instability due to recurrent commodity boom-and-bust cycles.
Contents
- Introduction
- The Foreign Exchange Market in Papua New Guinea
- Determination of the Equilibrium Real Exchange Rate
- Policy Recommendations
- Conclusion
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