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

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  • Mr. 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

  • Mr. Rabah Arezki & Markus Bruckner, 2010. "Resource Windfalls and Emerging Market Sovereign Bond Spreads: The Role of Political Institutions," IMF Working Papers 2010/179, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2010/179
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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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    More about this item

    Keywords

    WP; commodity price shock; commodity; price; Commodity Price Shocks; Sovereign Bond Spread; Political Institutions; commodity export shock; UNCTAD commodity statistics; commodity price data; commodity price booms; export price shock; Sovereign bonds; Yield curve; Commodity prices; Emerging and frontier financial markets; Global;
    All these keywords.

    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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