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

12 Pages Posted: 4 Aug 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: July 2010

Abstract

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.

Keywords: Bonds, Commodity prices, External debt, External shocks, Gross domestic product, Political economy, Sovereign debt

Suggested Citation

Arezki, Rabah and Bruckner, Markus, Resource Windfalls and Emerging Market Sovereign Bond Spreads: The Role of Political Institutions (July 2010). IMF Working Paper No. 10/179, Available at SSRN: https://ssrn.com/abstract=1653193

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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