International Commodity Price Shocks, Democracy, and External Debt

Author/Editor:

Markus Bruckner ; Rabah Arezki

Publication Date:

March 1, 2010

Electronic Access:

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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 effects that international commodity price shocks have on external debt using panel data for a world sample of 93 countries spanning the period 1970-2007. Our main finding is that positive commodity price shocks lead to a significant reduction in the level of external debt in democracies, but to no significant reduction in the level of external debt in autocracies. To explain this result, we show that positive commodity price shocks lead to a statistically significant and quantitatively large increase in total government expenditures in autocracies. In democracies on the other hand government expenditures did not increase significantly. We also document that following positive windfalls from international commodity price shocks the risk of default on external debt decreased in democracies, but increased significantly in autocracies.

Series:

Working Paper No. 2010/053

Subject:

Commodity price shocks Commodity prices Competition Expenditure External debt

English

Publication Date:

March 1, 2010

ISBN/ISSN:

9781451963427/1018-5941

Stock No:

WPIEA2010053

Pages:

22

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