Publication: Management of Oil Windfalls in Mexico : Historical Experience and Policy Options for the Future
Loading...
Date
2001-04
ISSN
Published
2001-04
Author(s)
Editor(s)
Abstract
The macroeconomic impact of commodity windfalls has provided fertile ground for research since the 1970s. Particularly affected are developing countries that rely heavily on commodity exports. in the case of oil windfalls, cross-country experience is vast: Indonesia, Kazakhstan, Mexico, Nigeria, the Russian Federation, and Republica Bolivariana de Venezuela have all been buffered by such windfalls. The authors investigate Mexico's experience. They provide an overview of oil's impact on the Mexican economy and of the management of oil rents engineered by the government from the 1970s to date. A third of government revenues come from the hydrocarbon sector--especially oil exports. The reliance of public finance on a single commodity means that shocks threaten the economy's fiscal balance and stability. Policy options for protecting the economy from volatility in oil revenues without eliminating the benefits from rising prices include a stabilization fund and hedging strategies on international markets, which the authors discuss. The stabilization fund smoooths consumption and reduces the costs associated volatile spending. The fund and hedging strategies can complement each other--the fund working as the main recipient of revenues, and the hedging strategies managing short-lived movements in prices. This joint strategy would also reduce the size of the fund and the probability of its going bankrupt.
Link to Data Set
Citation
“Everhart, Stephen; Duval-Hernandez, Robert. 2001. Management of Oil Windfalls in Mexico : Historical Experience and Policy Options for the Future. Policy Research Working Paper;No. 2592. © http://hdl.handle.net/10986/19677 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Publication Geopolitics and the World Trading System(Washington, DC: World Bank, 2024-12-23)Until the beginning of this century, the GATT/WTO system worked. Economic research provided a compelling explanation. It showed that if governments maximize the well-being of their own countries broadly defined, GATT/WTO principles would facilitate mutually beneficial cooperation over their trade policy choices. Now heightened geopolitical rivalry seems to have undermined the WTO. A simple transposition of the previous rationalization suggests that geopolitics and trade cooperation are not compatible. The paper shows that this is only true if rivalry eclipses any consideration of own-country well-being. In all other circumstances, there are gains from trade cooperation even with geopolitics. Furthermore, the WTO’s relevance is in question only if it adheres too rigidly to its existing rules and norms. Through measured adaptation to the geopolitical imperative, the WTO can continue to thrive as a forum for multilateral trade cooperation in the age of geopolitics.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication Global Poverty Revisited Using 2021 PPPs and New Data on Consumption(Washington, DC: World Bank, 2025-06-05)Recent improvements in survey methodologies have increased measured consumption in many low- and lower-middle-income countries that now collect a more comprehensive measure of household consumption. Faced with such methodological changes, countries have frequently revised upward their national poverty lines to make them appropriate for the new measures of consumption. This in turn affects the World Bank’s global poverty lines when they are periodically revised. The international poverty line, which is based on the typical poverty line in low-income countries, increases by around 40 percent to $3.00 when the more recent national poverty lines as well as the 2021 purchasing power parities are incorporated. The net impact of the changes in international prices, the poverty line, and new survey data (including new data for India) is an increase in global extreme poverty by some 125 million people in 2022, and a significant shift of poverty away from South Asia and toward Sub-Saharan Africa. The changes at higher poverty lines, which are more relevant to middle-income countries, are mixed.Publication Global Socio-economic Resilience to Natural Disasters(Washington, DC: World Bank, 2025-05-22)Most disaster risk assessments use damages to physical assets as their central metric, often neglecting distributional impacts and the coping and recovery capacity of affected people. To address this shortcoming, the concepts of well-being losses and socio-economic resilience—the ability to experience asset losses without a decline in well-being—have been proposed. This paper uses microsimulations to produce a global estimate of well-being losses from, and socio-economic resilience to, natural disasters, covering 132 countries. On average, each $1 in disaster-related asset losses results in well-being losses equivalent to a $2 uniform national drop in consumption, with significant variation within and across countries. The poorest income quintile within each country incurs only 9% of national asset losses but accounts for 33% of well-being losses. Compared to high-income countries, low-income countries experience 67% greater well-being losses per dollar of asset losses and require 56% more time to recover. Socio-economic resilience is uncorrelated with exposure or vulnerability to natural hazards. However, a 10 percent increase in GDP per capita is associated with a 0.9 percentage point gain in resilience, but this benefit arises indirectly—such as through higher rate of formal employment, better financial inclusion, and broader social protection coverage—rather than from higher income itself. This paper assess ten policy options and finds that socio-economic and financial interventions (such as insurance and social protection) can effectively complement asset-focused measures (e.g., construction standards) and that interventions targeting low-income populations usually have higher returns in terms of avoided well-being losses per dollar invested.Publication From Patriarchy to Policy(Washington, DC: World Bank, 2025-05-29)Legal institutions play an important role in shaping gender equality in economic domains, from inheritance to labor markets. But where do gender equal laws come from? Using cross-country data on social norms and legal equality, this paper investigates the socio-cultural roots of gender inequity in the legal system and its implications for female labor force participation. To identify the impact of social norms, the analysis uses an empirical strategy that exploits pre-modern differences in ancestral patriarchal culture as an instrument for present-day gender norms. The findings show that ancestral patriarchal culture is a strong predictor of contemporary norms, and conservative social norms are associated with more gender inequality in the de jure legal framework, the de facto implementation of laws, and the labor market. The paper presents evidence for a political selection mechanism linking norms to laws: countries with more conservative norms elect political leaders who are more hostile to gender equality, who then pass less progressive legislation. The results highlight the cultural roots and political drivers of legalized gender inequality.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Energy Policies and the Mexican Economy(Washington, DC, 2004-01)The report looks at energy policies in Mexico (both a major energy producer, and consumer) within its economic context, how the energy sector is managed, and how it performs, and at the implications for economic growth and public finances, and by extension, for broader social policies which depend heavily on federal funding. The energy sector finds itself in a vicious circle - reduced budget and borrowing capacity are leading to insufficient sector investment - resulting in declines in future production, hence government revenue. Breaking this vicious circle is a major challenge, given that attracting finance for energy sector investment on a major scale, without government support, lies at the heart of the problem. The report reviews the choices to increase efficiency, and electricity subsidies, as well as those for efficiently expanding oil and gas output. Three key areas for reform are discussed: a) achieving permanent gains in operational efficiency of the power and hydrocarbons sectors, to lower costs and improve service quality; b) restructuring electricity subsidies, targeting the poorest households; and, c) opening the hydrocarbons sectors to new players, attracting funds and skills, needed to undertake exploration, and development of the country's oil and gas resources. A policy simulation outlines the potential dynamic, general equilibrium model, assessing the economic impact of alternative energy policies. The analysis indicates that whereby an overoptimistic picture of the economic performance results from weak employment and wage estimates, conversely, the importance of increasing oil production will be undervalued, if the wage constraint is ignored, since this may be the single most important variable for ensuring that the real wage constraint does not bite.Publication Natural Oil Companies and Value Creation(World Bank, 2011-07-13)Approximately two billion dollars a day of petroleum are traded worldwide, which makes petroleum the largest single item in the balance of payments and exchanges between nations. Petroleum represents the larger share in total energy use for most net exporters and net importers. While petroleum taxes are a major source of income for more than 90 countries in the world, poor countries net importers are more vulnerable to price increases than most industrialized economies. This paper has five chapters. Chapter one describes the key features of upstream, midstream, and downstream petroleum operations and how these may impact value creation and policy options. Chapter two draws on ample literature and discusses how changes in the geopolitical and global economic environment and in the host governments' political and economic priorities have affected the rationale for and behavior of National Oil Companies' (NOCs). Rather than providing an in-depth analysis of the philosophical reasons for creating aNOC, this chapter seeks to highlight the special nature of NOCs and how it may affect their existence, objectives, regulation, and behavior. Chapter three proposes a value creation index to measure the contribution of NOCs to social value creation. A conceptual model is also proposed to identify the factors that affect value creation. Chapter four presents the result of an exploratory statistical analysis aimed to determine the relative importance of the drivers of value creation. In addition, the experience of a selected sample of NOCs is analyzed in detail, and lessons of general applicability are derived. Finally, Chapter five summarizes the conclusions.Publication Reforming Fuel Pricing in an Age of $100 Oil(World Bank, Washington, DC, 2013-01)Increases in world oil prices since 2004 have challenged consumers and oil-importing countries across the world. Oil prices temporarily fell sharply in 2009, only to triple three years later. The oil import share of gross domestic product rose by nearly half among net oil importers in just two years between 2009 and 2011. Governments that control oil product prices have come under pressure to intervene by keeping domestic prices low and effectively subsidizing consumers. This study focuses on the evolving role of oil in national economies, particularly those of developing countries, and proposes a menu of options for drawing a roadmap for pricing policy reform for oil products. In light of events since 2009, it examines how recent price movements have affected countries' vulnerability to world oil price increases, how governments have adjusted domestic fuel prices in response, the consequences of the policy responses, other coping mechanisms to deal with high oil prices and price volatility, the roadblocks to reforming pricing policy, and how to deal with them. This report suggests a menu of options for moving away from sectoral subsidies to market-based pricing, accompanied by an integrated social protection program and complementary policies to reduce consumption through efficiency improvement and fuel diversification. Sending the right price signals and reducing consumption can bring many benefits, ranging from greater supply security to less congestion and pollution from road transport. This report can help policy makers conduct more informed national dialogues on managing fuel pricing and the political economy around it.Publication Drawing a Roadmap for Oil Pricing Reform(World Bank, Washington, DC, 2013-05)In 2011, the median oil imports rose to 5 percent of gross domestic product for net importers. In the past several years, many governments have not passed through the world oil price increases to consumers fully. As a sign of divergent pricing policies, the retail prices of gasoline, diesel, and cooking gas in January 2013 varied by a factor of 190, 250, and 70, respectively, across developing countries. Policies to keep oil product prices low to benefit the economy and protect the poor have had a number of unintended negative consequences, including flourishing corruption in the oil sector and entrenchment of monopoly operators or inefficient firms through which subsidies are channeled, stifling competition and raising costs. The path to market-based pricing depends on the starting conditions: the gap between current and market-based price levels, the level of public awareness about the extent of departure from market prices, the degree of market concentration and competition in downstream oil, the subsidy delivery mechanism where subsidies are provided, the robustness of social service delivery, and the perceived credibility of the government. The evidence presented in this paper suggests that pricing reform often does not have a clear end and should instead be viewed as a continuous process of adjustment and search for mechanisms that take into account the country's institutions and political system, and the oil sector's market structure, infrastructure, and history.Publication MENA Quarterly Economic Brief, January 2015 : Plunging Oil Prices(Washington, DC: World Bank, 2015-01)This issue of the MENA Quarterly Economic Brief focuses on the implications of low oil prices for eight developing countries, or the MENA-8 (oil importers: Egypt, Tunisia, Lebanon and Jordan and oil exporters: Iran, Iraq, Yemen and Libya) and the economies of the GCC (Gulf Cooperation Council), who play a major role in providing funds in the form of aid, investment, tourism revenues and remittances to the rest of the countries of the region. We make the following assumptions about the future price of oil: (i) The price will average $65 Brent p/b in 2015; (ii) a higher price $78 Brent p/b will be used for comparison analysis. As with other economic variables, there is uncertainty associated with the future price of oil, which adds to the error involved in projections. The data for 2015 2017 in the figures and tables are projections. These projections are based on statistical information available through early January 2015.
Users also downloaded
Showing related downloaded files
Publication Mexico Poverty and Equity Assessment(Washington, DC: World Bank, 2025-02-20)This Mexico Poverty and Equity Assessment reviews the evidence about poverty and equity in Mexico over the last two decades, compares it to comparable international experience, and identifies a set of critical areas of policy intervention to answer the opening question. The report aims at contributing to an open conversation in Mexico about how to achieve this essential policy objective. This report postulates three main policy areas needed for poverty eradication in Mexico: inclusive growth, efficient social policy, and infrastructure to confront vulnerability. The report includes four sections, the first three of which collect evidence about poverty, social deprivations, and vulnerability and how the evolution of these three correlates to patterns of economic growth, social protection policy and territorial development. The fourth section provides some quantitative benchmarks of what it would take to eradicate extreme poverty in Mexico. Poverty in Mexico is defined not only in monetary terms, but also in a multidimensional manner that includes social deprivations. These are social deprivations that often define formal-vs-informal employment, so policy changes that close these carencias, as they are called in Mexico, will also reduce the informality gap. This report documents the evolution of poverty, social deprivations, and vulnerability to poverty. It explains the main forces that have driven this evolution and advises that many of these forces may not operate the same in the future as they did in the past. It provides the basis to argue that short to medium term extreme poverty eradication requires newer policy actions in terms of inclusive growth, more efficient social policy, and investments in physical and social infrastructure to reduce vulnerability. The report indicates that short to medium term eradication to extreme poverty is a major, but within reach, development challenge for Mexico.Publication Economic Recovery(World Bank, Washington, DC, 2021-04-06)World Bank Group President David Malpass spoke about the world facing major challenges, including COVID, climate change, rising poverty and inequality and growing fragility and violence in many countries. He highlighted vaccines, working closely with Gavi, WHO, and UNICEF, the World Bank has conducted over one hundred capacity assessments, many even more before vaccines were available. The World Bank Group worked to achieve a debt service suspension initiative and increased transparency in debt contracts at developing countries. The World Bank Group is finalizing a new climate change action plan, which includes a big step up in financing, building on their record climate financing over the past two years. He noted big challenges to bring all together to achieve GRID: green, resilient, and inclusive development. Janet Yellen, U.S. Secretary of the Treasury, mentioned focusing on vulnerable people during the pandemic. Kristalina Georgieva, Managing Director of the International Monetary Fund, focused on giving everyone a fair shot during a sustainable recovery. All three commented on the importance of tackling climate change.Publication South Asia Development Update, April 2024: Jobs for Resilience(Washington, DC: World Bank, 2024-04-02)South Asia is expected to continue to be the fastest-growing emerging market and developing economy (EMDE) region over the next two years. This is largely thanks to robust growth in India, but growth is also expected to pick up in most other South Asian economies. However, growth in the near-term is more reliant on the public sector than elsewhere, whereas private investment, in particular, continues to be weak. Efforts to rein in elevated debt, borrowing costs, and fiscal deficits may eventually weigh on growth and limit governments' ability to respond to increasingly frequent climate shocks. Yet, the provision of public goods is among the most effective strategies for climate adaptation. This is especially the case for households and farms, which tend to rely on shifting their efforts to non-agricultural jobs. These strategies are less effective forms of climate adaptation, in part because opportunities to move out of agriculture are limited by the region’s below-average employment ratios in the non-agricultural sector and for women. Because employment growth is falling short of working-age population growth, the region fails to fully capitalize on its demographic dividend. Vibrant, competitive firms are key to unlocking the demographic dividend, robust private investment, and workers’ ability to move out of agriculture. A range of policies could spur firm growth, including improved business climates and institutions, the removal of financial sector restrictions, and greater openness to trade and capital flows.Publication Media and Messages for Nutrition and Health(World Bank, Washington, DC, 2020-06)The Lao People’s Democratic Republic (Lao PDR) has experienced rapid and significant economic growth over the past decade. However, poor nutritional outcomes remain a concern. Rates of childhood undernutrition are particularly high in remote, rural, and upland areas. Media have the potential to play an important role in shaping health and nutrition–related behaviors and practices as well as in promoting sociocultural and economic development that might contribute to improved nutritional outcomes. This report presents the results of a media audit (MA) that was conducted to inform the development and production of mass media advocacy and communication strategies and materials with a focus on maternal and child health and nutrition that would reach the most people from the poorest communities in northern Lao PDR. Making more people aware of useful information, essential services and products and influencing them to use these effectively is the ultimate goal of mass media campaigns, and the MA measures the potential effectiveness of media efforts to reach this goal. The effectiveness of communication channels to deliver health and nutrition messages to target beneficiaries to ensure maximum reach and uptake can be viewed in terms of preferences, satisfaction, and trust. Overall, the four most accessed media channels for receiving information among communities in the study areas were village announcements, mobile phones, television, and out-of-home (OOH) media. Of the accessed media channels, the top three most preferred channels were village announcements (40 percent), television (26 percent), and mobile phones (19 percent). In terms of trust, village announcements were the most trusted source of information (64 percent), followed by mobile phones (14 percent) and television (11 percent). Hence of all the media channels, village announcements are the most preferred, have the most satisfied users, and are the most trusted source of information in study communities from four provinces in Lao PDR with some of the highest burden of childhood undernutrition.Publication Remarks at the United Nations Biodiversity Conference(World Bank, Washington, DC, 2021-10-12)World Bank Group President David Malpass discussed biodiversity and climate change being closely interlinked, with terrestrial and marine ecosystems serving as critically important carbon sinks. At the same time climate change acts as a direct driver of biodiversity and ecosystem services loss. The World Bank has financed biodiversity conservation around the world, including over 116 million hectares of Marine and Coastal Protected Areas, 10 million hectares of Terrestrial Protected Areas, and over 300 protected habitats, biological buffer zones and reserves. The COVID pandemic, biodiversity loss, climate change are all reminders of how connected we are. The recovery from this pandemic is an opportunity to put in place more effective policies, institutions, and resources to address biodiversity loss.