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

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  • 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.

Suggested Citation

  • Rabah Arezki & Markus Bruckner, 2011. "Commodity Windfalls, Polarization, and Net Foreign Assets: Panel Data Evidence on the Voracity Effect," School of Economics and Public Policy Working Papers 2011-06, University of Adelaide, School of Economics and Public Policy.
    • Handle: RePEc:adl:wpaper:2011-06
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    Cited by:

    1. Majumder, Monoj Kumar & Raghavan, Mala & Vespignani, Joaquin, 2020. "Oil curse, economic growth and trade openness," Energy Economics, Elsevier, vol. 91(C).
    2. Joël CARIOLLE, 2016. "The voracity and scarcity effects of export booms and busts on bribery," Working Papers P146, FERDI.
    3. Yohei Tenryu, 2017. "The role of the private sector under insecure property rights," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 64(3), pages 285-311, September.
    4. Elissaios Papyrakis, 2013. "Environmental Performance in Socially Fragmented Countries," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 55(1), pages 119-140, May.
    5. Markus Brueckner & Wojtek Paczos & Evi Pappa, 2020. "On the Relationship between Domestic Saving and the Current Account: Evidence and Theory for Developing Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(5), pages 1071-1106, August.
    6. Joël Cariolle & Petros G Sekeris, 2021. "How export shocks corrupt: theory and evidence," Working Papers hal-03164648, HAL.
    7. Osiris Jorge Parcero & Elissaios Papyrakis, 2024. "Income inequality and the oil resource curse," Papers 2401.04046, arXiv.org.
    8. Tenryu, Yohei, 2013. "The Role of the Private Sector under Insecure Property Rights," MPRA Paper 74893, University Library of Munich, Germany, revised 27 Oct 2016.
    9. 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.
    10. James Fenske & Igor Zurimendi, 2017. "Oil and ethnic inequality in Nigeria," Journal of Economic Growth, Springer, vol. 22(4), pages 397-420, December.
    11. Parcero, Osiris J. & Papyrakis, Elissaios, 2016. "Income inequality and the oil resource curse," Resource and Energy Economics, Elsevier, vol. 45(C), pages 159-177.
    12. Alexeev, Michael & Zakharov, Nikita, 2022. "Who profits from windfalls in oil tax revenue? Inequality, protests, and the role of corruption," Journal of Economic Behavior & Organization, Elsevier, vol. 197(C), pages 472-492.
    13. Pernille Parmer, 2014. "Natural Rerources and public Sector Wages," Working Paper Series 16114, Department of Economics, Norwegian University of Science and Technology.
    14. Elissaios Papyrakis & Pak Hung Mo, 2014. "Fractionalization, Polarization, And Economic Growth: Identifying The Transmission Channels," Economic Inquiry, Western Economic Association International, vol. 52(3), pages 1204-1218, July.
    15. Montes Rojas Gabriel & Carrera Jorge & Panigo Demián & Solla Mariquena & Toledo Fernando, 2023. "Income Inequality and External Wealth of Nations," Asociación Argentina de Economía Política: Working Papers 4675, Asociación Argentina de Economía Política.
    16. repec:zbw:bofitp:2022_002 is not listed on IDEAS
    17. Majumderad, Monoj Kumar & Raghavan, Mala & Vespignani, Joaquin, 2020. "Oil Curse," MPRA Paper 101138, University Library of Munich, Germany, revised 2020.
    18. repec:elg:eechap:15325_14 is not listed on IDEAS
    19. Alexeev, Michael & Zakharov, Nikita, 2022. "Who profits from windfalls in oil tax revenue? Inequality, protests, and the role of corruption," Journal of Economic Behavior & Organization, Elsevier, vol. 197(C), pages 472-492.
    20. 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).

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    More about this item

    Keywords

    commodity windfalls; net foreign assets; polarization; political economy;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)
    • Z10 - Other Special Topics - - Cultural Economics - - - General

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