International Commodity Price Shocks, Democracy, and External Debt

23 Pages Posted: 8 Mar 2010

See all articles by Rabah Arezki

Rabah Arezki

World Bank - African Development Bank

Markus Bruckner

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Date Written: March 2010

Abstract

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.

Keywords: Commodity prices, Debt management, Economic models, External debt, External shocks, Fiscal policy, Government expenditures, International capital markets, Political economy, Revenue mobilization

Suggested Citation

Arezki, Rabah and Bruckner, Markus, International Commodity Price Shocks, Democracy, and External Debt (March 2010). IMF Working Paper No. 10/53, Available at SSRN: https://ssrn.com/abstract=1565227

Rabah Arezki (Contact Author)

World Bank - African Development Bank ( email )

15 Avenue du Ghana
P.O.Box 323-1002
Tunis-Belvedère
Tunisia

Markus Bruckner

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

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