IMF Working Papers

Economic Consequences of Large Extraction Declines: Lessons for the Green Transition

By Rudolfs Bems, Lukas Boehnert, Andrea Pescatori, Martin Stuermer

May 8, 2023

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Rudolfs Bems, Lukas Boehnert, Andrea Pescatori, and Martin Stuermer. Economic Consequences of Large Extraction Declines: Lessons for the Green Transition, (USA: International Monetary Fund, 2023) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Limiting climate change requires a 80 percent reduction in fossil fuel extraction until 2050. What are the macroeconomic consequences for fossil fuel producing countries? We identify 35 episodes of persistent, exogenous declines in extraction based on a new data-set for 13 minerals (oil, gas, coal, metals) and 122 countries since 1950. We use local projections to estimate effects on real output as well as the external and the domestic sectors. Declines in extractive activity lead to persistent negative effects on real GDP and the trade balance. The real exchange rate depreciates but not enough to offset the decline in net exports. Effects on low-income countries are significantly larger than on high-income countries. Results suggest that legacy effects of bad institutions could prevent countries from benefiting from lower resource extraction.

Keywords: Climate policies, Development, Energy transition, Fossil fuels, Macroeconomics, Resource-rich countries

Publication Details

  • Pages:

    48

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

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  • Series:

    Working Paper No. 2023/097

  • Stock No:

    WPIEA2023097

  • ISBN:

    9798400241123

  • ISSN:

    1018-5941