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Commodity Price Volatility, Democracy and Economic Growth

21 Pages Posted: 27 Oct 2011  

Rabah Arezki

International Monetary Fund (IMF)

Thorvaldur Gylfason

University of Iceland - Faculty of Economics and Business Administration; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: October 27, 2011

Abstract

We use a new dataset on non-resource GDP to examine the impact of commodity price volatility on economic growth in a panel of up to 158 countries during the period 1970-2007. Our main finding is that commodity price volatility leads to a significant increase in non-resource GDP growth in democracies, but to no significant increase in autocracies. To explain this result, we show that increased commodity price volatility leads to a statistically significant and quantitatively large increase in net national saving in democracies. In autocracies, on the other hand, net national saving decreased significantly. Our results hold true when using indicators capturing the quality of economic institutions in lieu of indicators of political institutions.

Keywords: commodity prices, volatility, democracy, economic growth

JEL Classification: D740, D630, F320, Q330

Suggested Citation

Arezki, Rabah and Gylfason, Thorvaldur, Commodity Price Volatility, Democracy and Economic Growth (October 27, 2011). CESifo Working Paper Series No. 3619. Available at SSRN: https://ssrn.com/abstract=1950105

Rabah Arezki

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Thorvaldur Gylfason (Contact Author)

University of Iceland - Faculty of Economics and Business Administration ( email )

IS-101 Reykjavik
Iceland
+354 525 4533/00 (Phone)
+354 552 6806 (Fax)

HOME PAGE: http://www.hi.is/~gylfason/inenglish.htm)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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