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

25 Pages Posted: 1 Feb 2011

See all articles by Rabah Arezki

Rabah Arezki

World Bank - African Development Bank

Markus Bruckner

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Multiple version iconThere are 2 versions of this paper

Date Written: September 2010

Abstract

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.

Keywords: Asset management, Commodities, Commodity price fluctuations, Cross country analysis, Current account, Current account surpluses, Economic models, Government expenditures, Political economy, Time series

Suggested Citation

Arezki, Rabah and Bruckner, Markus, Commodity Windfalls, Polarization, and Net Foreign Assets: Panel Data Evidence on the Voracity Effect (September 2010). IMF Working Paper No. 10/209, Available at SSRN: https://ssrn.com/abstract=1750697

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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