The objective of this project is to provide an integrated framework for managing oil wealth in oil-dependent economies to achieve economic stability and sustainability.
Oil-dependent economies rely on oil revenues to finance government expenditure. There are three major problems associated with oil-dependent economies:
1) Oil revenues are highly volatile and uncertain.
2) Oil is a non-renewable resource; hence it provides unsustainable revenue streams.
3) The oil industry is capital intensive and generates fewer jobs compared to other manufacturing industries.
Reducing an economy’s dependency on oil through developing other sectors within it can help to mitigate against these issues. Stabilization funds can help counteract oil revenue volatility by stabilizing government expenditure in the face of oil price fluctuations. Sovereign wealth funds address the risk to the economy of oil depletion by generating a sustainable source of income in other sectors. Other objectives of these funds include improving intergenerational equity and isolating the economy from the negative macroeconomic effects associated with oil revenues, such as the so-called Dutch disease. The project investigates how different economic policies alters the composition of national wealth and whether such policies are reducing or creating wealth.