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Commodity Windfalls, Democracy and External Debt

Author

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  • Rabah Arezki
  • Markus Brückner

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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Suggested Citation

  • Rabah Arezki & Markus Brückner, 2012. "Commodity Windfalls, Democracy and External Debt," Economic Journal, Royal Economic Society, vol. 122(561), pages 848-866, June.
    • Handle: RePEc:ecj:econjl:v:122:y:2012:i:561:p:848-866
    DOI: j.1468-0297.2012.02508.x
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    File URL: http://hdl.handle.net/10.1111/j.1468-0297.2012.02508.x
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    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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