IKMAS SEMINAR SERIES NO.10/2019
OPTIMAL FISCAL MANAGEMENT OF RESOURCE WEALTH IN AN ECONOMY WITH STATE-OWNED ENTERPRISES: A DSGE ANALYSIS
Date: 26 July 2019 (Friday)
Time: 10.00am – 12.00pm
Venue: IKMAS Seminar Room
Speaker: Dr. King Yoong Lim, Lecturer, Nottingham Business School, Nottingham Trent University
ABSTRACT
Over the past 3 decades, policy prescription on fiscal management of resource
revenue associated with the “natural resource curse” literature has progressed from the
initial consensus of saving the entirety of resource windfall abroad (for consumption
smoothing and precautionary buffer) to allocating some fraction domestically to
finance infrastructure investments so as to address persistent infrastructure gaps.
However, in practice, resource rents spent domestically are often parked in entities
known as sovereign funds, which finance state-owned enterprises (SOEs) operating
in the domestic market. We develop a DSGE model in which the government of a
resource-rich economy allocates its resource revenue between a Resource Fund
abroad and investments in SOEs. Despite being less productive efficient, SOEs’
operation benefits from scale economies tied to the resource sector: its profitability
is therefore procyclical to resource price shocks. The model is Bayesian-estimated to
Malaysia, with the results suggesting a business cycle heavily influenced by resource
shocks. We solve numerically for an optimal resource revenue allocation between
SOE investments and Resource Fund, and find the present allocation to SOEs in
Malaysia to be higher than the socially optimal level.
BIODATA
Dr. King Yoong Lim holds a PhD Economics (awarded with the prestigious President’s
Doctoral Scholar medal) from the University of Manchester. He is currently a Lecturer in
Economics with the Nottingham Business School, Nottingham Trent University. A three-time
STC Consultant with the World Bank, he contributed to Malaysia’s Capital Market Masterplan
2, National Innovation Strategy (and its associated GLC Innovation Transformation
Programme), and recently led the redevelopment of Kenya Revenue Agency’s revenue
forecasting framework. His wide range of research interests includes applied development
economics, economic growth, and industrial transformation & innovation strategies. To
date, he has published in Macroeconomic Dynamics, Journal of Macroeconomics, Economic
Modelling, New Zealand Economic Papers, and Singapore Economic Review. He is also
the co-author of the policy-centric book, “Can Malaysia Achieve Innovation-led Growth?”
published by Khazanah Nasional in 2013.