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Resource Windfalls and Emerging Market Sovereign Bond Spreads; The Role of Political Institutions

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  • Rabah Arezki
  • Markus Bruckner

Abstract

We examine the effect that revenue windfalls from international commodity price shocks have on sovereign bond spreads using panel data for 30 emerging market economies during the period 1997-2007. Our main finding is that positive commodity price shocks lead to a significant reduction in the sovereign bond spread in democracies, but to a significant increase in the spread in autocracies. To explain our finding we show that, consistent with the political economy literature on the resource curse, revenue windfalls from international commodity price shocks significantly increased real per capita GDP growth in democracies, while in autocracies GDP per capita growth decreased.

Suggested Citation

  • Rabah Arezki & Markus Bruckner, 2010. "Resource Windfalls and Emerging Market Sovereign Bond Spreads; The Role of Political Institutions," IMF Working Papers 10/179, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:10/179
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    References listed on IDEAS

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    1. Frederick van der Ploeg, 2011. "Natural Resources: Curse or Blessing?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 366-420, June.
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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. repec:ipg:wpaper:2014-492 is not listed on IDEAS
    3. Joël CARIOLLE, 2014. "Corruption in Turbulent Times: a Response to Shocks?," Working Papers P106, FERDI.
    4. Jeffrey Frankel, 2013. "A Solution to Fiscal Procyclicality: The Structural Budget Institutions Pioneered by Chile," Central Banking, Analysis, and Economic Policies Book Series,in: Luis Felipe Céspedes & Jordi Galí (ed.), Fiscal Policy and Macroeconomic Performance, edition 1, volume 17, chapter 9, pages 323-391 Central Bank of Chile.
    5. repec:rnp:ecopol:ep1708 is not listed on IDEAS
    6. Bouri, Elie & de Boyrie, Maria E. & Pavlova, Ivelina, 2017. "Volatility transmission from commodity markets to sovereign CDS spreads in emerging and frontier countries," International Review of Financial Analysis, Elsevier, vol. 49(C), pages 155-165.
    7. Joël CARIOLLE, 2014. "Corruption in Turbulent Times: a Response to Shocks?," Working Papers P106, FERDI.
    8. Sandrine Kablan & Josef Loening & Yasuhiro Tanaka, 2014. "Is Chad Affected by Dutch or Nigerian Disease?," Journal of Empirical Economics, Research Academy of Social Sciences, vol. 3(5), pages 278-295.
    9. Kodjovi Mawulikplimi Eklou, 2016. "A Conditional Revenue Curse? Progressive Taxation and Resource Rents in Developing Countries," Cahiers de recherche 16-03, Departement d'Economique de l'École de gestion à l'Université de Sherbrooke.
    10. Araujo, Juliana D. & Li, Bin Grace & Poplawski-Ribeiro, Marcos & Zanna, Luis-Felipe, 2016. "Current account norms in natural resource rich and capital scarce economies," Journal of Development Economics, Elsevier, vol. 120(C), pages 144-156.
    11. Frankel, Jeffrey A., 2012. "The Natural Resource Curse: A Survey of Diagnoses and Some Prescriptions," Scholarly Articles 8694932, Harvard Kennedy School of Government.
    12. 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.
    13. Alexandru MINEA & Jean-Louis COMBES & Weneyam Hippolyte BALIMA, 2015. "Sovereign Debt Risk in Emerging Countries: Does Inflation Targeting Adoption Make Any Difference?," Working Papers 201504, CERDI.

    More about this item

    Keywords

    Commodity price shocks; Sovereign Bond Spread; Political Institutions; sovereign bond; sovereign bonds; bond; bond spreads; bonds;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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