Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/264376 
Year of Publication: 
2022
Series/Report no.: 
ADB Economics Working Paper Series No. 660
Publisher: 
Asian Development Bank (ADB), Manila
Abstract: 
We present a simple model of internal and external balance that incorporates the key features of resource-rich developing countries (RRDCs). The main result is that "government take", which is the ratio of fiscal resource revenue to resource output, is a key determinant of the equilibrium real exchange rate (RER) in RRDCs. In examining the case of Papua New Guinea, which has grappled with foreign exchange restrictions since 2015, we find that about half of the RER overvaluation estimated at 26% in 2019 would disappear if the current low level of government take was to be lifted to its longterm average. The analysis has two key takeaways for RRDCs. First, changes in the government take require adjustments to the RER and fiscal policy to maintain internal and external balance. Second, economic adjustments to falls in the take are difficult; therefore policies that seek to stabilize the take over time to promote macroeconomic stability are recommended.
Subjects: 
government take
internal and external balance
real exchange rate
resource-rich developing countries
resource taxation
JEL: 
F31
O11
Q32
Q33
Q38
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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