Rough diamonds : how the volatility of commodity prices polishes or tarnishes the effectiveness of public spending in Africa ?

This study examines the impact of commodity price volatility on the efficiency of public spending in 44 African countries between 1998 and 2018. Through a two-step econometric approach, combining stochastic frontier analysis and fractional regression, we evaluate the relationship between commodity price fluctuations and the efficiency of public spending. The results reveal that an increase in volatility is significantly associated with a reduction in public spending efficiency, highlighting the vulnerability of African public finances to exogenous shocks. The study highlights the importance of economic diversification, institutional quality, and governance in mitigating the negative effects of this volatility. Countries with sovereign wealth funds appear to better withstand price shocks, while countries without such mechanisms are particularly affected. Identified transmission channels include inflation, political stability, workforce, and income inequalities, each exerting distinct influences on spending efficiency. These findings call for strengthened public policies to stabilize budgetary revenues and promote more efficient management of public resources, while enhancing democratic institutions and developing human resources. The research contributes to the literature on the 'resource curse' and provides recommendations for policymakers in managing resource-rich economies.