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

September 1, 2010

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Format: Chicago

Markus Bruckner, and Rabah Arezki. Commodity Windfalls, Polarization, and Net Foreign Assets: Panel Data Evidenceon the Voracity Effect, (USA: International Monetary Fund, 2010) accessed November 23, 2024

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.

Subject: Commodities, Commodity prices, Export price indexes, External position, Foreign assets, National accounts, Prices, Private investment

Keywords: Africa, Commodity, Commodity price boom, Commodity prices, Commodity windfall, Commodity Windfalls, Country, Export price indexes, Exported commodity goods lead, Foreign assets, Global, Hydrocarbon commodity price, Net Foreign Assets, Polarization, Political Economy, Private investment, Revenue windfall, World commodity supply, WP

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/209
Stock No:

WPIEA2010209
ISBN:

9781455205400
ISSN:

1018-5941

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