EconomicConsequences

ofLargeExtraction

Declines

LessonsfortheGreenTransition

RudolfsBems,LukasBoehnert,AndreaPescatoriandMartin

Stuermer

WP/23/97

IMFWorkingPapersdescriberesearchin

progressbytheauthorsandarepublishedto

elicitcommentsandtoencouragedebate.

TheviewsexpressedinIMFWorkingPapersare

thoseoftheauthorsanddonotnecessarily

representtheviewsoftheIMF,itsExecutiveBoard,

orIMFmanagement.

2023

MAY

*WearegratefulforcommentsbyLukasBoer,Pierre-OlivierGourinchas,FrancescoGrigoli,PetyaKoeva-Brooks,andAntonioSpilimbergoaswellasparticipantsoftheIMFResearchDepartment'sCommoditiesUnitSeminar,theCentreforStudyofAfricanEconomiesSeminar,andtheRuhrGraduateSchoolSymposium.WethankRachelBrasier,WenchuanDong,AbreshmiNowar,andTianchuQiforoutstandingresearchassistance.

?2023InternationalMonetaryFund

WP/23/97

IMFWorkingPaper

ResearchDepartment

EconomicConsequencesofLargeExtractionDeclines:LessonsfortheGreenTransitionPreparedbyRudolfsBems,LukasBoehnert,AndreaPescatoriandMartinStuermer*

AuthorizedfordistributionbyPierre-OlivierGourinchas

May2023

IMFWorkingPapersdescriberesearchinprogressbytheauthorsandarepublishedtoelicitcommentsandtoencouragedebate.TheviewsexpressedinIMFWorkingPapersarethoseoftheauthorsanddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement.

ABSTRACT:Limitingclimatechangerequiresa80percentreductioninfossilfuelextractionuntil2050.Whatarethemacroeconomicconsequencesforfossilfuelproducingcountries?Weidentify35episodesofpersistent,exogenousdeclinesinextractionbasedonanewdata-setfor13minerals(oil,gas,coal,metals)and122countriessince1950.Weuselocalprojectionstoestimateeffectsonrealoutputaswellastheexternalandthedomesticsectors.DeclinesinextractiveactivityleadtopersistentnegativeeffectsonrealGDPandthetradebalance.Therealexchangeratedepreciatesbutnotenoughtooffsetthedeclineinnetexports.Effectsonlow-incomecountriesaresignificantlylargerthanonhigh-incomecountries.Resultssuggestthatlegacyeffectsofbadinstitutionscouldpreventcountriesfrombenefitingfromlowerresourceextraction.

RECOMMENDEDCITATION:Bems,Rudolfs,LukasBoehnert,AndreaPescatoriandMartinStuermer

JELClassificationNumbers:Q32,Q43,O13,E30]

Keywords:

Resource-richcountries,energytransition,fossilfuels,macroeconomics,development,climatepolicies.

apescatori@

,

mstuermer@

Authors’E-MailAddresses:

rbems@

,

lukas.boehnert@economics.ox.ac.uk

,

EconomicConsequencesofLargeExtractionDeclines:LessonsfortheGreenTransition*

RudolfsBems?,LukasBoehnert?,AndreaPescatori§,andMartinStuermer?April5,2023

Abstract

Limitingclimatechangerequiresa80percentreductioninfossilfuelextractionuntil2050.Whatarethemacroeconomicconsequencesforfossilfuelproducingcountries?Weidentify35episodesofpersistent,exogenousdeclinesinextractionbasedonanewdata-setfor13minerals(oil,gas,coal,metals)and122countriessince1950.Weuselocalprojectionstoestimateeffectsonrealoutputaswellastheexternalandthedomesticsectors.DeclinesinextractiveactivityleadtopersistentnegativeeffectsonrealGDPandthetradebalance.Therealexchangeratedepreciatesbutnotenoughtooffsetthedeclineinnetexports.Effectsonlow-incomecountriesaresignificantlylargerthanonhigh-incomecountries.Re-sultssuggestthatlegacyeffectsofbadinstitutionscouldpreventcountriesfrombenefitingfromlowerresourceextraction.

JELclassification:Q32,Q43,O13,E30

Keywords:Resource-richcountries,energytransition,fossilfuels,macroeconomics,develop-ment,climatepolicies.

*WearegratefulforcommentsbyLukasBoer,Pierre-OlivierGourinchas,FrancescoGrigoli,PetyaKoeva-Brooks,andAntonioSpilimbergoaswellasparticipantsoftheIMFResearchDepartment’sCommoditiesUnitSeminar,theCentreforStudyofAfricanEconomiesSeminarandtheRuhrGraduateSchoolSymposium.RachelBrasier,WenchuanDong,AbreshmiNowar,andTianchuQiprovidedoutstandingresearchassistance.TheviewsinthispaperarethoseoftheauthorsanddonotnecessarilyreflecttheviewsoftheInternationalMonetaryFund,itsExecutiveBoard,oritsmanagement.

?InternationalMonetaryFund,ResearchDepartmentandCEPR,Email:rbems@.

?UniversityofOxford,EconomicsDepartment,Email:lukas.boehnert@economics.ox.ac.uk.

§InternationalMonetaryFund,ResearchDepartment,Email:apescatori@.

?InternationalMonetaryFund,ResearchDepartment,Email:mstuermer@.

2

1Introduction

Reachingnetzerocarbonemissionsby2050requiresa80percentreductioninglobalfos-silfuelextractioncomparedwith2021levels,accordingtothe

InternationalEnergyAgency

(2022)

.Manycountriescouldthereforeexperienceapermanentcontractionintheirfossilfuelextractivesectors.Whatwouldbethemacroeconomicimpact?

Alargebodyofliteratureemphasizesthenegativeimpactofhavingasizeableextrac-tionsectoronacountry’seconomicgrowth,i.e.,theresourcecurse,byweighingontheper-formanceofmanufacturing(seee.g.,

Frankel(2012)

and

Krugman(1987)

)andonthequalityofinstitutions(see

Mauro(1995)

and

LaneandTornell(1996)

).

Thereis,however,adearthofanalysesonthemacroeconomiceffectsofareversal.Itisanopenquestionwhetheradeclineinfossilproductionisdetrimentalorbeneficialforcoun-tries’economicgrowth.Canthemaladiesidentifiedbytheresourcecurseliteratureduringresourceboomsbereversedbyshrinkingtheextractivesector?Asclimatepoliciesandtheireffectsonaspecificcountry’sextractionsectorareuncertain,towhatextentdoesanticipationorthelackthereofshapetheeffectsofanextractiondeclineoneconomicactivity,especiallyonthetradebalance?

Thispapershedslightonthesequestionsbyestimatingthemacroeconomicimpactoflargeandpersistent,exogenousdeclinesinextractionactivity.Westudymajortransmissionchannels,theroleofinstitutions,andcomparetheempiricalresultstoaneoclassicalmodelwithandwithoutfullanticipation.

Wecollectanewdata-setontheextractionof13commodities,includingcrudeoil,coal,andmetals,forcountriesworldwidestartingin1950.Usingstatisticalandnarrativeapproaches,weidentify35episodesofpersistentdeclinesinextractiveactivitythatarenotcorrelatedwithothereconomicshockshittingtheeconomyatthesametime.Wesetupastylizedclassicalsmall-open-economyrealmodeltostudyadjustmentstotheextractiondeclineswithandwithoutanticipation.Weuselocalprojectionstoestimatetheeffectsoftheseepisodesonrealoutput,theexchangerate,thequalityofinstitutions,andtheexternalandthedomesticsectors.

Thetypicalepisodeinournewdata-setisalargeandpersistentdeclineinextractionactivity:a10percentinitialdeclinethataccumulatestoa40percentdeclineinthetenthyear.

3

LocalprojectionmethodsshowthatsuchadeclineleadstoapersistentdeclineinrealGPDofsixpercentafteraboutsixyears.

BothprivateandpublicconsumptionaswellasinvestmentfallinlinewiththedeclineinGDP.Consumptionandtheexchangerate,however,haveadelayedreaction,inconsistentwithfullanticipationofthepersistentfallinextractionandrelatedrevenues.Therealex-changeratedepreciates,eventuallybyabout20percent,butnotenoughtostimulateareallo-cationofeconomicactivitytowardsothertrade-ablesectorssuchasmanufacturingthatcouldpotentiallyoffsetthedeclineinexports.Empiricalresults,infact,revealsignificantnegativespillovereffectsontoboththemanufacturingandservicessectors.Netexportsfallinlinewithextraction.

Theanalysisfindsheterogeneityoftheeffectsacrosscountries.Thisheterogeneityde-pendsontheirpercapitaincomeandthesizeoftheminingsectorrelativetotheeconomy.Alargeandpersistentdeclineinextractionimpliessignificantlylargerdeclinesineconomicactivityforlow-incomecountriesthanforhigh-incomecountries.

Ourresultsshowthatadeclineinextractionactivitydoesnotimprovethequalityofinstitutionsnotevenadecadeaftertheshock.Theorystressesthatincreasesinresourceextractiondiminisheslong-termgrowththroughrapaciousrent-seeking(thevoracityeffect),negativelyaffectingthequalityofinstitutionsthroughpoliticaleconomyeffects(asin

Lane

andTornell(1996)

and

TornellandLane(1999)

)andbyincreasingcorruption(see

Mauro

(1995)

and

LeiteandWeidmann(1999)

).Ourcontributiontothisliteratureistoshowthatthereisnoreversionofthedeteriorationofinstitutionsafteradeclineinresourceextraction.Thissuggestshysteresiseffectsandanasymmetricresponseofinstitutionstoshocks:onceinstitutionsaredamageditisdifficulttoimprovethem.Stressingtherelevanceofgoodinsti-tutions,resultsalsoshowthatstartingwithhigher-qualityinstitutionscanhelptobufferthenegativeeconomiceffectsofpersistentdeclinesinextractionactivity.

Ourresultsalsouncovernegativespillovereffectsfromtheminingsectortotheman-ufacturingandservicesectors.TheliteraturestressesthathighresourceextractionmakescountriessusceptibletotheDutchDisease.Therealexchangeratebecomesoverlyappreci-atedinresponsetopositivecommoditypriceshocks,causingacontractionofthetradablesector,especiallymanufacturing(e.g.,

Frankel(2012)

and

Krugman(1987)

).Wearethefirsttoshowthatforthereversecaseofdecreasingresourceextraction,thedepreciationofthe

4

exchangeratedoesnotstimulateareallocationtowardsothertradablesectorssuchasthemanufacturingsector,pointingpossiblytowardslonglastingscarsfromresourceboom.Sincethesesectorsprovideinputsandprocessoutputsoftheminingsectors,theyarealsonega-tivelyaffectedtoanextentthatmorethanoffsetsthepotentialbenefitsofthedepreciationoftherealexchangerate.

Theinitialshareofthemanufacturingsectorinvalueaddedmatters,though.Economieswithabiggerinitialmanufacturingsharefarebetter.Thissuggeststhattherearenon-convexitiesinthetradablesector(i.e.,sunkcosts),favoringtheintensivemargin(existingexportingman-ufacturingfirms)ratherthantheextensivemargin(theestablishmentsofnewmanufacturingfirms).

Wefindlittleanticipationeffectsforextractiondeclines.Thisisincontrasttoextractionbooms,whichareanticipatedbylargemineraldiscoveriesandleadtoaninitialdomesticsaving-investmentimbalancefollowedbytheexportboomasfoundin

Arezki,Ramey,and

Sheng(2017)

.Itis,indeed,surprisinghowwellastylizedclassicalsmall-open-economyrealmodelcanmatchqualitativelytheempiricalresultsonceitdepartsfromfullanticipation.Thisisparticularlythecase,whentheextractiondeclineisperceivedasaseriesoftemporarynegativeshocksthatleadexpectationsofminingoutputtoadjustslowlyovertime.

Thepaperrunsabatteryofrobustnesschecks.Ourresultsarerobusttodifferentspecifications,theinclusionofvariouscontrolvariablesandtousingthesyntheticcontrolmethodology.Wealsocheckforsensitivitytosub-samplesandanticipationeffects.

Themainimplicationforpolicymakersisthatthetransitiontowardscleanenergymightbeachallenge,especiallyforcountriesthatrelyonfossilfuelexportsandarelowtomiddleincome.Countrieswillneedtoimprovethequalityoftheirinstitutionsandpolicymakersshouldreduceclimatepolicyuncertaintywhichmayleadtoalackofanticipation,riskingamoreexpensiveadjustmentprocess.

Ourpaperistoourknowledgethefirsttoshowthattherearesubstantialimpactsofdeclinesinextractiveactivitiesatthemacroeconomiclevel.Itcontributestoabroadliteratureontheresourcecurse(e.g.,

SachsandWarner(2001)

and

MartinandSubramanian(2008)

),assummarizedin

BrunnschweilerandBulte(2008)

and

PloegandVenables(2012)

thatfocusesonthemacroeconomiceffectsofresourcebooms.Thisliteraturesupportsthetheoreticalpre-dictionthathigherresourceextractiondamageslong-termgrowth(seee.g.,

SachsandWarner

5

(2001)

,

Feyrer,Mansur,andSacerdote(2017)

,

AllcottandKeniston(2018)

,

Arezki,Ramey,and

Sheng(2017)

,

Cust,Harding,andVezina(2019)

,and

Harding,Stefanski,andToews(2020)

).Thereisastringoftheliteraturethatstudiesperiodsofresourcebusts,whichis,however,focusedonregionaleconomicimpacts(seee.g.,

Black,McKinnish,andSanders(2005)

,

Cav-

alcanti,DaMata,andToscani(2019)

,

Watson,Lange,andLinn(2023)

,

JacobsenandParker

(2016)

,and

Hanson(2023)

).

Finally,ourresultscanprovideempiricalbenchmarkstoanemergingliteratureontheimpactofthecleanenergytransitiononfossilfuelproducingcountries.Thisliteraturehasmostlyfocusedontheeconomicimplicationsofstrandedassets(seee.g.,

PloegandRezai

(2020)

)andfiscalimplications(seee.g.,

Mirzoev,Zhu,Yang,Zhang,Roos,Pescatori,and

Matsumoto(2020)

)sofar.

Thepaperisstructuredasfollows.

Section2

introducesournewdata-setandexplainshowweidentifytheshockepisodes.

Section3

presentsthemacroeconomiceffectsoftheseshockepisodesbasedonsimpleplots.

Section4

introducesourtheoreticalframeworkanditsresults.

Section5

explainstheempiricalframeworkand

Section6

presenttheempiricalresults.

Section7

examinestherelationshipbetweenpersistentextractiondeclinesandthequalityofinstitutions.

Section8

providesrobustnesschecksand

Section9

concludes.

2IdentificationStrategy:EpisodesofExogenousExtractionDeclines

Themainconcernwhenestimatingthecausaleffectofadeclineinextractiveactivityonmacroeconomicvariablesisreversecausalityandomittedvariables.Inparticular,eventsthataffectminingproductionmayequallybecorrelatedtoGDP(orothervariables)or,toputitdifferently,adeclineineconomicactivitymayhaverepercussionsonminingoutputinthesameyear.Toaddressthissubstantialissue,webuildanewdata-setconsistingoffossilfuelsandmineralextraction,mineralprices,andmacroeconomicvariables;thenstartingfromafarlargersetofcandidateepisodes,weidentify35,macro-economicallyrelevant,exogenousepisodesofdeclinesinextractionoutputfor11commoditiesacross30countriesusinganarra-tiveapproach.These35episodesareplausiblyunrelatedtootherdevelopmentinthedomestic

6

economyorglobalactivityandcan,thus,beusedtoinfertheircausaleffectonthecountry’smacroeconomicvariables.

2.1TheDataset

Weassembledataonmining(orprimary)productionoffossilfuelsandmetals,andidentifyepisodesofsustaineddeclines.Wecollectanunbalanceddata-setforthe13largestcommodi-tiesintermsoftheirworldwideproductionvaluefor122countriesfrom1950to2020.Pleasefindthelistofcommoditiesanddescriptionsin

AppendixA

.

Wecombineannualdataontheextractedquantitiesfromdifferentsources.Wetakehistoricprimaryproductiondatafor11commoditiesfrom

Mitchell(2013)

andincludedataoncopperandleadproductionfromthe

FederalInstituteforGeosciencesandNaturalResources

(2012)

.Theglobalhistoricproductionofmetalsistakenfrom

U.S.GeologicalSurvey(2012)

.

Wetakehistoricalworldpricesofcoalandmetalsfrom

Schmitz(1979)

and

Schwerhoff

andStuermer(2019)

,andpricesforoilandnaturalgasfrom

BP(2022)

.Weaccountforinfla-tionbyusingtheUSconsumerpriceindextodeflatethecommoditypricedata.Wecollectcountry-leveldataonmacroeconomicvariablesincludingrealGDPinlocalcurrency,nominalGDP,investment,privateandpublicconsumption,exportsandimports,therealexchangerate(relativetotheUSDollar),thecurrentaccountandemployment.Wesourcethedatafrom

Feenstra,Inklaar,andTimmer(2015)

.Weusedataonrealvalueaddedbyindustryfromthe

UnitedNations(2022)

.Finally,weincludemeasuresonpoliticalstabilityandinstitutionalqualityfromthe

CenterforSystemicPeace(2022)

following

Acemoglu,Naidu,Restrepo,and

Robinson(2019)

.

2.2Large,Persistent,andMacro-relevantExtractionDeclines

Acandidateepisodeisanyextractionpattern{Qt+k}=0overagiventimewindow,[t,T],foreachcountryandcommodity.Toobtainameasureofitsmacroeconomicimportanceforeach

identifiedepisodei,wecomputetheaveragevalueoftheextractiondecline(ADV)relativetothecountry’snominalGDPatthestartoftheepisode:

TiGDPt,i,

ADVi=1∑1?Qt+k,iPt+k,i

(1)

7

whereQandParetheproductionandpriceofthecommodityconsideredandTisthedu-rationoftheepisode.

1

Thedurationofanepisodeisdefinedasthenumberofyearsbetweentheproductionpeak(t=0)tothetrough(t=T)wherethetroughisidentifiedasthefirstyearinwhichthefossilfuelsectoroperatesatthenew,permanentproductionlevelafterthedecline.

Episodesareinitiallyselectedusingthreecriteriapertainingtothesize,persistence,andmacro-relevanceofthedeclineinlinewithourobjectivetolearnmoreaboutthepotentialimpactoftheenergytransition:(a)Thecumulativedeclineinthequantityofproductionisatleast20percentfrompeaktotrough;(b)afterreachingthetrough,theproductionlevelhastoremainbelowitspre-shocklevelforatleast5years;(c)theADVisatleast0.05percent.Criteria(a)and(b)isolate154episode,addingcriterion(c)reducesthatnumberto70macro-relevantepisodes.

Thevalueofthedeclinescanbesizeable.Thelargestdeclinesintermsofaveragerevenuelossestookplaceinoil,copperandgoldproduction.Especiallydeclinesincrudeoilproductionseemtocomewithlargerevenuelossesofalmost20percentofGDPonaverage(

AppendixA

showstheaveragesizeandduration).

2.3ExogenousExtractionDeclines

Toidentifyepisodesofextractiondeclinesthatareplausiblyexogenous,wecategorizethemfirstbysixdifferentcausesbasedonanarrativehistoricalanalysis(inthespiritof

Romerand

Romer(2010)

and

Ramey(2011)

amongothers):

a.structuraltransitions(e.g.thebreakdownoftheSovietUnion)orwars,

b.globalrecessions,

c.policychangesaffectingalldomesticindustrialsectors,

d.policychangesaffectingonlytheminingsector,

e.depletion,

f.undefinedcauses.

1TheADViscloselyrelatedtotheNetPresentValue(NPV),whichisusedinempiricalworkonresourcewindfallslikein

Arezki,Ramey,andSheng(2017)

.WecannotcomputetheNPV,becausethedurationoftheexogenousdeclinesisex-anteuncertainandthediscountfactorcouldvaryacrosscountriesandtime.

8

Episodesincategories(d.)and(e.)areclassifiedasexogenoussincethedrivingfactorsaresupposedlyexogenousto(aggregate)domesticeconomicconditionsanddonotaffectothersectorsatthesametime.Insuchcases,themosttypicaldeclineiseithertheresultofachangeindomesticpolicyspecifictothecommoditysectorordepletion.

Domesticpolicychangesincludethenationalizationofminesorchangestothetaxregime.Forexample,Guyananationalizeditsbauxiteminesin1975.Subsequentmismanage-mentdrovedowntheirefficiencyandresultedinlargedeclinesinproduction.Anexampleforataxchange,isthesuddentaxincreaseonbauxitemininginSurinamein1974.Thistaxincreaseonlyaffectedbauxiteminingbutnotothersectors.Thelevyledtoadeclineinbauxiteminingbymorethan30percentoverthenextfiveyearsandapermanentlylowerproductionlevelthereafter.Weexcludeepisodesduringwhichpolicychangesarepartofabroaderchangeineconomicpolicies(e.g.,thenationalizationofallminingindustriesandredistributionoflandinZimbabwein1999).

Exogenousproductiondeclinesduetodepletionencompassinstances,whenthequalityofthedepositorreservoirdeterioratesforgeologicalreasonsorduetomissinginvestment.Thesetwofactorsofteninteractwitheachother.Inanycase,theresultishigherproductioncosts,makingproductionunprofitableandforcingtheminetoclosedown.Oneexample,isironoremininginEswatiniin1975,wherelowerorequalitymademiningunprofitableandresultedinfastdeclinesinproductionandthesubsequentclosureofmines.AnotherexampleisChad,whereagingoilwellsanddecliningreservoirqualityledtohigherproductioncostsandmadeinvestmentunprofitableafter2005.

Focusingonlyontheexogenousones,leavesuswith35episodesoflargeandpersistentdeclines.

Table1

providesthesummarystatistics,while

AppendixB

listsallepisodeswithmoredetailsabouttheirnarrative.

Figure1

showsthedistributionofthesedeclinesovertime.Theoccurrenceofshockepisodesisrelativelyevenlydistributedandisunrelatedtotheglobaleconomiccycle.

9

1

#ofDeclineEpisodes

2

Declineof

ExtractionQuant.

(%ofPeak)

3

Declineof

ExtractionValue

(Mil.USD)

4

Duration(Years)

5

Annualized

DeclineValue

(%ofGDP)

Bauxite

Copper

CrudeOil

Gold

Lead

NaturalGas

Nickel

Iron

Silver

Tin

Zinc

Total

3

3

18

3

1

2

1

1

1

1

1

35

-50

-78

-45

-52

-78

-54

-83

-78

-44

-65

-99

-96

-619

-10,000

-2,060

-11

-4,480

-98

-32

-14

-236

-95

5

13

9

7

6

6

7

5

8

6

7

-1.9

-0.6

-2.5

-0.4

-0.1

-0.1

-0.1

-1.7

-0.9

-1.2

-1.1

Table1:Summarystatisticsoftheexogenousdeclinesinextractionactivitybycommodity.

Notes:Column5(theaverageADV)istheresultofdividingcolumn3bycolumn4andtheGDPattimet=0foreveryshockepisodes.

Figure1:Distributionofextractiondeclineepisodesovertime.

Notes:MIC=MiddleIncomeCountries,LIC=LowIncomeCountries,HIC=HighIncomeCountries.Theshadedareasrepresentglobalrecessionsasdefinedby

Kose,Sugawara,andTerrones(2020)

.

2.4Anticipation

Decliningextractionactivityduetolowerorequalitybutalsoduetopolicychangescouldbeanticipated,leadingtheeconomytostarttheadjustmentbeforehand.Anticipationwouldbiasourestimationresultstowardsasmallernegativeimpactonaggregateoutput,becausetheregressionwouldnotcapturetheinitialadjustment.

10

Toassesstheextenttowhichshockswereanticipated,wereviewedinformationoncom-modityproductioninArticleIVconsultationreportsfromtheInternationalMonetaryFund(IMF)andcomparedthemtotheactualextractiondeclines.TheseIMFreportsaimatsumma-rizingallrelevantmacroeconomicinformationbasedondiscussionsandinformationprovidedbytherespectivecountry’sauthorities,theprivatesectorandIMFstaffestimates.Thebian-nualreportsalsotypicallyprovidea5-yearoutlookfortheeconomyandgiveguidanceonmacroeconomicandfiscalpolicies.

Wefindevidencethattheinitialdeclineinproductionwasnotanticipatedin24declineepisodesoutof29declineepisodeswithArticleIVStaffReports(see

AppendixB

).Theinitialdeclinewasfullyanticipatedinonlyfourepisodes.Foroneepisodeastaffreportwasavailablebutthecommodityproductionwasnotmentioned.TherewerenoArticleIVStaffreportsavailablefortheremainingsixepisodes.Wekeepthefourepisodesthatwereanticipatedinthesamplebutcheckthesensitivityofourresultstoanticipationin

Section8.2

.

WealsoconductadetailedexaminationofrevisionsincommodityvolumeprojectionsfortheentireepisodesforChadandGabon.Wechoosethesecountries,becausetheyfeaturesubsequentIMFArticleIVconsultationreportsthatcovertheentiretimeoftheepisodesandtheimportanceofoilproductionfortheireconomiesisamongthefivehighestinthesample.

Inbothcasesthedetailedquantitativeexaminationconfirmedthatextractiondeclineepisodeswereentirelyunanticipated.InthecaseofChad,theyearbeforethedeclinestartedproductionoverthenextfiveyears(2005-09)wasprojectedtoincreaseby25percentrelativetothepre-episodepeak(2005).Thisoptimisticprojectionwasm