Political Insecurity and Oil : The Effect of Time Horizons on Windfall Foreign Savings in the Caspian and Beyond

To avoid Dutch Disease and other oil-related problems, policymakers advise oil-rich countries to save a proportion of their oil revenue abroad until the rate of return on these investments is greater at home than abroad and institutions have developed sufficiently to insure the quality of project implementation. To date, Azerbaijan and Kazakhstan have pursued different oil revenue management strategies: Azerbaijan has dramatically increase domestic expenditure, while Kazakhstan has kept spending in check allowing them to save a greater proportion of oil earnings abroad. This paper argues that “political time horizon,” or the duration of a leader’s expected tenure in office, affects a government’s willingness to save petrodollars abroad. While Kazakhstan and Azerbaijan share many characteristics of stability, a close examination of political conditions in these countries reveals subtle but important differences in the time horizons of Presidents Aliyev and Nazarbayev that help explain differences in oil revenue management strategies between these two countries. Cross-national statistical analysis extends the analysis to demonstrate the impact of time horizon on oil revenue management beyond the Caspian region