Comparison of Public Investment Approaches on Social Welfare Function: A Case Study of Iran
محورهای موضوعی : Econometrics and Financial Applications of other Theories (Stochastic Processes, (Stochastic) Partial Differential Equations, Dynamical Systems)
Mohammadhasan Fotros
1
(Department of Economics, Bu-Ali Sina University, Hamedan, Iran)
Esmael Torkamani
2
(Department of Economics, Bu-Ali Sina University, Hamedan, Iran)
کلید واژه: PIH and BIH, Public Investment Approaches, Social Welfare Function,
چکیده مقاله :
The use of natural resource revenues for achievement of development has been a challenging issue for resource abundant countries. These challenges stem from the fact that incomes from natural resources are non-durable, unpredictable and uncertain. Different countries have pursued various approaches and tools for managing these revenues to avoid economic fluctuations. The international organizations and economic experts propose a diversification in the use of resource revenues through different approaches of public investment. Maximizing the social welfare function has become a common guideline for resource revenue management in resource-rich countries. This article investigates the effect of public investment approaches and their impacts on intergenerational social welfare function of Iran. To this end, the impact of two public investment approaches, namely Permanent Income Hypothesis (PIH) and Bird In Hand (BIH), was examined and compared on a certainty equivalent of social welfare function. Results of the simulation with Iran's economic data indicated substantial positive loss in welfare if switching to the BIH approach. Calculations show that the certainty equivalent of social welfare function for PIH and BIH is 786.3 and 444.3, respectively. PIH provides a higher welfare level for the Iranian economy.
[1] Ahmadi, R., Ariankia, N., American Option Pricing of Future Contracts in an Effort to Investigate Trading Strategies; Evidence from North Sea Oil Exchange, Advances in mathematical finance & applications, 2017, 2(3), P.67-77. Doi: 10.22034/amfa.2017.533102.
[2] Agah, M., Malekpoorb, H., Bagheri, A., Investigating the Effect of Financial Constraints and Differentm Levels of Agency Cost on Investment Efficiency, Advances in mathematical finance & applications, 2017, 2 (4), P. 31-47. Doi: 10.22034/amfa.2017.536264.
[3] Barro, R. J., Government Spending in a Simple Model of Endogenous Growth, Journal of Political Economy, 1990, 98(5), P.103-125. Doi: 10.1086/261726.
[4] Blau, J., Abramovitz, M., The dynamics of Social Welfare Policy, Oxford, New York, 2003.
[5] Bom, P.R.D., Ligthart, J. E., Public infrastructure investment, output dynamics, and balanced budget fiscal rules, Journal of Economic Dynamics and Control, 2014,40, P.334–354. Doi: 10.1016/j.jedc.2014.01.018.
[6] Boudreau, J.W., Vicki, K., What price stability? Social welfare in matching markets, Mathematical Social Sciences, 2014, 67, P. 27-33. Doi: 10.1016/j.mathsocsci.2013.09.004.
[7] Valdés, M.R.O., Engel, E., Optimal fiscal strategy for oil exporting countries (No. 0-118), International Monetary Fund, 2000. Doi: 10.5089/9781451854077.001.
[8] Charlotte, J.L., Thomas, A. H., Robert, C.Y., Boom, Bust, or Prosperity? Managing Sub-Saharan Africa's Natural Resource Wealth, IMF, Washington, DC, 2013. Doi: 10.5089/9781475507379.087.
[9] Chatterjee, S., Gibson, J., Rioja, F., Optimal public debt redux, Journal of Economic Dynamics and Control, 2017, 83(C), P.162-174. Doi: 10.1016/j.jedc.2017.08.005.
[10] Collier, P.R., Van Der Ploeg, M., Venables, A.J., Managing Resource Revenues in Developing Economies, Staff Papers, International Monetary Fund, Palgrave Macmillan, 2010, 57(1), P. 84-118. Doi:10.1057/imfsp. 2009.16.
[11] Dabla-Norris, E., Brumby, J., Kyobe, A., Mills, Z., Papageorgiou, C., Investing in Public Investment: An Index of Public Investment Efficiency, IMF Working Paper 11/37, International Monetary Fund, Washington, D.C, 2011. Doi: 10.1007/s10887-012-9078-5.
[12] Drysdale, J., Sustainable development or resource cursed? An exploration of Timor-Leste’s institutional choices, a thesis submitted for the degree of Doctor of Philosophy of The Australian National University, 2007.
[13] Gibson J., Rioja, F., Public Infrastructure Maintenance and the Distribution of Wealth, Economic Inquiry, 2016, 55(1), P.175-186. Doi: 10.1111/ecin.12371.
[14] Glomm, G., Ravikumar, B., Public Investment in Infrastructure in a Simple Growth Model. Journal of Economic Dynamics and Control, 1994, 18(6), P. 1173-1187. Doi: 10.1016/0165-1889(94)90052-3.
[14] Gholami, R.J., Lalbarb, A.,Effect of Information Delay on Joint Investment Fund's Performance, Advances in mathematical finance & applications, 2016, 1(2), P.1-13. Doi: 10.22034/amfa.2017.527796.
[16] Hamilton, J.D., Understanding crude oil prices, Energy Journal, 2009, 30(2), P. 179-206. Doi:10.5547/issn 0195-6574-ej-vol30-no2-9.
[17] Hartwick, J.M., Intergenerational Equity & the Investing of Rents from Exhaustible Resources, American Economic Review, 1977, 67(5), P. 972-974. Doi: 10.2307/1828079.
[18] IMF, World Economic Outlook, April 2014: Recovery Strengthens, Remains Uneven, Iternational Monetry Fund, Washington, DC. 2014. Doi:10.5089/9781484372265.081.
[19] Maliszewski, W., Fiscal Policy Rules for Oil Producing Countries: A Welfare-Based Assessment, IMF working paper, WP/09/126., 2009. Doi: 10.5089/9781451872736.001.
[20] Motamen, H., Expenditure of Oil Revenue: An Optimal Control Approach with Application to the Iranian Economy, Frances Pinter, 1979.
[21] Murphy, K. M., A. Shleifer, and R. W. Vishny., Industrialization and the Big Push, Journal of Political Economy, 1989, 97, P.1003–26. Doi: 10.1086/261641.
[22] Rosenstein-Rodan, P. N., Problems of Industrialisation of Eastern and South-Eastern Europe, The Economic Journal, 1943, 53, P.202–11. Doi: 10.2307/2226317.
[23] Rosenstein-Rodan, P. N., International aid for underdeveloped countries, The Review of Economics and Statistics, 1961, 43(2), P. 107-138. Doi: 10.2307/1928662.
[24] Sachs, J.D., Warner, A. M., Natural Resource Abundance and Economic Growth, National Bureau of Economic Research Working Paper No. 5398, Cambridge, MA, 1995, P.1-28. Doi: 10.3386/w5398.
[25] Samake, I., Muthoora, P., Versailles, B., Fiscal Sustainability, Public Investment, and Growth in Natural Resource-Rich, Low Income Countries: The Case of Cameroon, IMF Working Paper, International Monetary Fund, Washington, D.C, 2013. Doi: 10.5089/9781484318256.001.
