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

Author/Editor: Arezki, Rabah | Bruckner, Markus
Authorized for Distribution: July 1, 2010
Electronic Access: Free Full Text (PDF file size is 159KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: 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.
 
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Series: Working Paper No. 10/179
Subject(s): Bonds | Commodity prices | External debt | External shocks | Gross domestic product | Political economy | Sovereign debt
Author's keyword(s): Commodity Price Shocks; Sovereign Bond Spread; Political Institutions
 
English  
    Published:   July 1, 2010        
            Format:   Paper
    Stock No:   WPIEA2010179   Pages:   11
    Price:   US$18.00
       
     
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