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Capital Will Not Become More Expensive as the World AgesAging of populations and convergence between developed and developing countries in per capita incomes are shaping the evolution of saving, investment, capital flows, and, in particular, the cost of capital. When considering these trends, the existing literature argues for either continued, low interest rates, or sharply rising ones. This paper presents an alternative view: modest rises in interest rates, which result from a combination of increases in the global weight of high-saving developing economies (limiting declines in global saving), and decelerations in the rate of growth in developing countries (constraining upward pressure in global investment). For the majority of countries, slowing capital demand resulting from decelerating growth, coupled with structural changes that influence its attractiveness as a destination for capital, moderate increases in interest rates. Changes in key assumptions do not alter this view. More specifically, the small rise in interest rates persists even in a scenario where growth in developing countries decelerates more slowly, or when elasticities governing the behavior of saving and investment are varied.
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Estimating the Economic Opportunity Cost of Capital for Public Investment Projects : An Empirical Analysis of the Mexican CaseThis paper offers an assessment of the
 methodologies employed to estimate the economic opportunity
 cost of capital for public sector projects, relying on the
 Mexican case for an applied empirical exercise. The
 traditional weighted cost of capital (top-down) approach
 used in the estimation of Mexico's economic opportunity
 cost of capital is reviewed and compared to the supply price
 (bottom-up) approach. With respect to previous studies using
 the top-down approach, this paper explores the contribution
 of domestic savings and expands the analysis to include a
 more detailed examination of the available macroeconomic,
 labor, financial, and tax information. The re-estimated
 top-down economic opportunity cost of capital for Mexico
 comes to 10.4 percent. To confirm these results and provide
 additional insights regarding the alternative bottom-up
 approach, the economic opportunity cost of capital is
 estimated using the supply price plus externalities method.
 For the case of Mexico, this paper recommends using a
 combination of estimation models (both the top-down and
 bottom-up approaches) to check the consistency of results
 and re-estimating the economic opportunity cost of capital
 every five years to accommodate for macroeconomic and fiscal
 changes. More broadly, the paper acknowledges the
 complexities involved in the estimation of the economic
 opportunity cost of capital for public investment projects
 and underlines the relevance of additional considerations,
 such as changes in global economic trends and country risk
 ratings, tax distortions, financial sector improvements, the
 impact of reforms, and data availability.
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Dutch Disease and Spending Strategies in a Resource-Rich Low-income Country : The Case of NigerThis paper examines spending plans
 suggested by the recent literature regarding Dutch disease
 and examines their implications to Niger relative to its
 expanding mineral sector. The key to the benefits of
 significant mineral revenue lies with the productivity and
 supply responses of spending. If significant output gain is
 ensured, then there is little difference across the spending
 plans in their effects on real consumption. The overshooting
 of relative prices of the non-tradable sector or the
 shrinking share of traded sectors in gross domestic product
 is also ameliorated with greater supply flexibility. Growth
 paths of alternative spending strategies differ markedly in
 timing and pattern when spending does not raise
 productivity. As a caution against expectations that
 exaggerate the benefits of mineral revenue under all
 circumstances, the more aggressive spending plan may result
 in a boom-bust cycle if fiscal adjustments and debt
 repayments are necessary for any significant borrowing
 against future revenue and productivity gains are not
 realized. Using extractive industries revenue for transfers
 to households would have a greater effect on poverty
 reduction in the short and medium term but the long-run
 gains from investment in human and physical capital are
 likely to offset the initial lack of pro-poor bias.
 Different strategies differ significantly with regard to
 risks and required technical implementation capacity and
 political capacity to sustain a chosen course of action.