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Commodity Windfalls, Polarization, and Net Foreign Assets: Panel Data Evidence on the Voracity Effect

Author/Editor: Arezki, Rabah | Bruckner, Markus
Authorized for Distribution: September 1, 2010
Electronic Access: Free Full Text (PDF file size is 949KB)
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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: This paper examines the effect that windfalls from international commodity price booms have on net foreign assets in a panel of 145 countries during the period 1970-2007. The main finding is that windfalls from international commodity price booms lead to a significant increase in net foreign assets, but only in countries that are homogeneous. In polarized countries, net foreign assets significantly decreased. To explain this asymmetry, the paper shows that in polarized countries commodity windfalls lead to large increases in government spending, political corruption, and the risk of expropriation, with no overall effect on GDP per capita growth. The paper's findings are consistent with theoretical models of the current account that have a built-in voracity effect.
 
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Series: Working Paper No. 10/209
Subject(s): Asset management | Commodities | Commodity price fluctuations | Cross country analysis | Current account | Current account surpluses | Economic models | Government expenditures | Political economy | Time series
Author's keyword(s): Commodity Windfalls; Net Foreign Assets | Polarization | Political Economy
 
English  
    Published:   September 1, 2010        
            Format:   Paper
    Stock No:   WPIEA2010209   Pages:   24
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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