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Commodity Windfalls, Democracy, and External Debt

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Author Info

  • Rabah Arezki

    ()
    (International Monetary Fund (IMF))

  • Markus Bruckner

    ()
    (School of Economics, University of Adelaide)

Abstract

We examine the effects that revenue windfalls from international commodity price booms have on external debt in a panel of 93 countries during the period 1970-2007. Our main finding is that increases in the international prices of exported commodity goods lead to a significant reduction in the level of external debt in democracies, but to no significant reduction in the level of external debt in autocracies. To explain this result, we show that in autocracies commodity windfalls lead to a statistically significant and quantitatively large increase in government expenditures. In democracies on the other hand government expenditures did not increase significantly. We also document that following commodity windfalls the risk of default on external debt decreased in democracies, but increased significantly in autocracies.

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File URL: http://www.economics.adelaide.edu.au/research/papers/doc/wp2011-03.pdf
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Bibliographic Info

Paper provided by University of Adelaide, School of Economics in its series School of Economics Working Papers with number 2011-03.

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Length: 21 pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:adl:wpaper:2011-03

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Keywords: commodity windfalls; debt; political institutions;

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  1. Raghuram Rajan's wrongness rankles
    by Noah in Noahpinion on 2011-04-09 19:01:00
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Cited by:
  1. Frankel, Jeffrey A., 2011. "How Can Commodity Exporters Make Fiscal and Monetary Policy Less Procyclical?," Scholarly Articles 4735392, Harvard Kennedy School of Government.
  2. Frankel, Jeffrey A., 2012. "The Natural Resource Curse: A Survey of Diagnoses and Some Prescriptions," Working Paper Series rwp12-014, Harvard University, John F. Kennedy School of Government.
  3. Lin, Faqin & Sim, Nicholas C.S., 2014. "Baltic Dry Index and the democratic window of opportunity," Journal of Comparative Economics, Elsevier, vol. 42(1), pages 143-159.
  4. Frankel, Jeffrey, 2011. "A Solution to Overoptimistic Forecasts and Fiscal Procyclicality: The Structural Budget Institutions Pioneered by Chile," Working Paper Series 11-012, Harvard University, John F. Kennedy School of Government.

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