Wasted windfalls: Inefficiencies in health care spending in oil rich countries

Keller, Michael

doi:10.1016/j.resourpol.2020.101618

Cited by 9 publications

(7 citation statements)

References 70 publications

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“…According to the results, oil rent promotes spending inefficiency. This is concomitant with the conclusions of oil curse hypothesis, which links the abundance of oil to public health inefficiency (Keller, 2020), corrupt political behavior (e.g. Shaxson, 2007), a deterioration of state accountability and volatility (e.g.…”

Section: Sfa Resultsmentioning

confidence: 81%

“…In line with a very recent work in the area of oil curse (Keller, 2020), this paper opts for SFA in order to measure an efficiency of public spending. This technique, which was first proposed by Aigner et al (1977), has been extensively used in various empirical investigation.…”

Section: Methodsmentioning

confidence: 99%

“…For instance, despite spending substantial subsidies in energy, the oil-rich countries in the Middle East and Africa face higher power outage per month resulting in a greater loss of value, compared to nonoil-rich countries (Devarajan, 2018). Similarly, the increase in oil revenue is associated with an increase in inefficiency of health sector of oil dependent countries while undermining their capacity to achieve full potential life expectancy (Keller, 2020). The upshot of this inefficiency is debt accumulation, which ultimately could constrain economic growth.…”

Section: Conceptual Framework: Link Between Public Spending Efficiency and Public Debtmentioning

confidence: 99%

“…The output Y is measured using the life expectancy at birth. A similar variable is used in prominent studies testing efficiency of health sector (see for example, Keller, 2020;Greene, 2005). Life expectancy is the outcome of various resource allocations undertaken by public or private agents.…”

Section: Definition Of the Variables Included In Our Stochastic Frontier Modelmentioning

confidence: 99%

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Further attempt to explain the oil curse mechanism using a debt overhang concept

Ghecham

2020

JES

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PurposeThis study aims at increasing the authors’ understanding how and why the oil curse takes place.Design/methodology/approachThe study uses a structural equation model (SEM) and stochastic frontier analysis (SFA) in order to underline the mechanism under which the oil curse operates.FindingsThe study shows that oil abundance could lead to inefficient resource allocation. This inefficiency is strongly correlated with a weak institutional setting which would lead to accumulated external debt and ultimately to poor economic performance.Research limitations/implicationsThe quality of institutions and governance plays a major role in defining government success in allocating public resources efficiently. In a weak institutional setting, characterized with lack of accountability oil rents can promote rent-seeking behavior of public agents; a type of behavior that promotes misallocation and waste of resources. This in turn undermines public finances and leads to external debt accumulation. Debt per se is not necessarily a bad thing, but it has a turning point beyond which it can be a source of economy for countries (particularly countries with limited diversified source of revenue and inefficient public sector). It is to note that the authors work does not refute the positive impact that the increase in oil value has on economic growth (e.g. Nusair, 2016). However, it reminds policy makers that in order to sustain this impact over long term, it is necessary to build a strong institutional framework that prevents inefficient use of resource allocation as it could result in rapid accumulation of debt over short period of time. The adoption of sovereign wealth funds (SWFs) by a number of oil rich countries has helped them to manage adverse oil shocks. Nonetheless, the effectiveness of these funds could be limited in a country whose institutions are not very strong. Characterized by a mediocre institutional setting, Algeria's sovereign fund, for example, has lost 67% of its reserves over just two years (2014–2015) before reaching the level zero by February 2017 following the drop of oil prices in 2015 (see Central Bank of Algeria, 2017). Also, the foreign exchange reserves of the country experienced a drop of more than 72% over a short period of time (2014–2020), leading to the resurgence of the idea of contracting external debt. Similarly, following the sharp drop in oil prices in 2015, the Saudi Arabia's external debt (% of GDP) has jumped by more than 150% over three years only, reaching a level of 28.85% in 2020 compared to a 10.62% in 2015 (https://Fred.stlouisfed.org/series/SAUDGDPGDPPT). The positive correlation of weak institutions with inefficiency can lead to fiscal policy procyclicality. Inefficient public spending tends to be procyclical compared to productive public spending (Makin, 2014). This procyclicality is apparent in developing countries, particularly those characterized by corrupted and weak institutional environment (Alesina et al., 2008; Frankel et al., 2013). This is conducive to output fluctuations where booms and busts are exacerbated (Frankel et al., 2013).Originality/valueOriginality of the study resides in the idea that external debt is an important element that could help to explain why oil curse could take place. The transmission mechanism that underpins the oil curse hypothesis is yet to be fully understood. In doing so, the paper, with the use of two sophisticated statistical techniques, reconciles between the concept of debt overhang and oil curse hypothesis. Similar research efforts are scant.

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Section: Sfa Resultsmentioning

confidence: 81%

Section: Methodsmentioning

confidence: 99%

Section: Conceptual Framework: Link Between Public Spending Efficiency and Public Debtmentioning

confidence: 99%

Section: Definition Of the Variables Included In Our Stochastic Frontier Modelmentioning

confidence: 99%

See 2 more Smart Citations

Further attempt to explain the oil curse mechanism using a debt overhang concept

Ghecham

2020

JES

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“…Higher government income should be transferred to the people in the form of public goods. However, as the resource curse theory predicts, and provides evidence of at the national level, natural resources deteriorate institutions and promote corruption, leading to a waste of public funds (Bhattacharyya and Hodler 2010;Keller 2020;Robinson and Torvik 2005). The same can be the case at the local level.…”

Section: Public Servicesmentioning

confidence: 94%

The socioeconomic impact of coal mining in Mozambique

Egger¹,

Keller²,

Mouco³

2021

WIDER Working Paper

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Is social spending pro‐poor in developing countries? The role of governance and political freedom

Mimoun

Raies

2022

Poverty & Public Policy

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This article extends the existing literature on the social spending‐poverty nexus by testing the proposition that the quality of governance and the political freedom status determine social spending effectiveness in developing countries (DCs). Our analysis helps explain the surprising result documented in prior studies, of no clear evidence that higher social spending, especially on education and health, translates to a significant reduction in poverty in DCs. Using unbalanced panel data of a large sample of DCs covering the period 1980–2019, we demonstrated that the impact of public spending on poverty is significantly reduced in countries that have a poor quality of governance and in those with relatively few political freedoms. This result is robust to a change in the poverty indicator and type, and the estimator used in regression models. This finding implies that improving the efficacy of social spending through improving governance and political freedom is as crucial as increasing the scale of this spending in the poverty alleviation strategy of DCs, especially those with limited public resources. Our empirical analysis also revealed other novel results about the socioeconomic factors most likely to explain poverty in DCs.

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Wasted windfalls: Inefficiencies in health care spending in oil rich countries

Cited by 9 publications

References 70 publications

Further attempt to explain the oil curse mechanism using a debt overhang concept

Further attempt to explain the oil curse mechanism using a debt overhang concept

The socioeconomic impact of coal mining in Mozambique

Is social spending pro‐poor in developing countries? The role of governance and political freedom

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