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Resource Curse or Blessing? Sovereign Risk in Resource-Rich Emerging Economies

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Abstract

In this paper we document the stylized facts about the relationship between international oil price swings, sovereign risk and macroeconomic performance of oil-exporting economies. We show that even though being a bigger oil producer decreases sovereign risk?because it increases a country?s ability to repay?having more oil reserves increases sovereign risk by making autarky more attractive. We develop a small open economy model of sovereign risk with incomplete international financial markets, in which optimal oil extraction and sovereign default interact. We use the model to understand the mechanisms behind the empirical facts, and show that it supports them.

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  • Franz Hamann & Enrique G. Mendoza & Paulina Restrepo-Echavarria, 2018. "Resource Curse or Blessing? Sovereign Risk in Resource-Rich Emerging Economies," Working Papers 2018-32, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:2018-032
    DOI: 10.20955/wp.2018.032
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    References listed on IDEAS

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    1. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    2. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
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    Cited by:

    1. Galego Mendes,Arthur & Pennings,Steven Michael, 2020. "One Rule Fits All ? Heterogeneous Fiscal Rules for Commodity Exporters When Price Shocks Can BePersistent: Theory and Evidence," Policy Research Working Paper Series 9400, The World Bank.

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    More about this item

    Keywords

    Sovereign Risk; Oil Production; Oil Reserves; Oil Price Swings;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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