Resources Booms and Macroeconomic Adjustments in Developing Countries

1Introduction

1.1 Purpose and Scope of the Study

Developing countries are prone to periodic temporary external shocks. Effects of these shocks can be both positive and negative. These can come through a sudden change in the current and capital accounts of the balance of payments or can originate from internal sources. A positive external shock, in the form of a resources boom, enables an economy to attain higher levels of growth, consumption and welfare in the short run through the increased inflow of capital or export revenues. However, a positive shock can be a mixed blessing for a country, because the economic changes triggered by a resources boom will enhance long-term growth prospects only if the government takes appropriate policy measures. ...