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Commodity Windfalls, Polarization, and Net Foreign Assets: Panel Data Evidence on the Voracity Effect

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Author Info

  • Rabah Arezki

    ()
    (International Monetary Fund (IMF))

  • Markus Bruckner

    ()
    (School of Economics, University of Adelaide)

Abstract

This paper examines the effect that windfalls from international commodity price booms have on net foreign assets in a panel of 145 countries during the period 1970-2007. The main finding is that windfalls from international commodity price booms lead to a significant increase in net foreign assets, but only in countries that are ethnically homogeneous. In ethnically polarized countries, net foreign assets significantly decreased. To explain this asymmetry, the paper shows that in ethnically polarized countries commodity windfalls lead to large increases in government spending, political corruption, and the risk of expropriation, with no overall effect on GDP per capita growth. The paper's findings are consistent with theoretical models of the current account that have a built-in voracity effect.

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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 2011-06.

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Length: 24 pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:adl:wpaper:2011-06

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Web page: http://www.economics.adelaide.edu.au/
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Keywords: commodity windfalls; net foreign assets; polarization; political economy;

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References

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Citations

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Cited by:
  1. Muñoz, Félix & Encinar, María Isabel & Otamendi, Francisco Javier, 2013. "The allocation of entrepreneurial effort and its implications on economic growth," Working Papers in Economic Theory 2013/06, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
  2. 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.
  3. Elissaios Papyrakis, 2013. "Environmental Performance in Socially Fragmented Countries," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 55(1), pages 119-140, May.

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