Resource Curse or Blessing? Sovereign Risk in Resource-Rich Emerging Economies

61 Pages Posted: 27 Nov 2018 Last revised: 27 Nov 2019

See all articles by Franz Hamann

Franz Hamann

Central Bank of Colombia

Enrique G. Mendoza

National Bureau of Economic Research (NBER); University of Pennsylvania

Paulina Restrepo-Echavarria

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Date Written: October, 2018

Abstract

In this paper we document the stylized facts about the relationship between international oil price swings, sovereign risk and macroeconomic performance of oil-exporting economies. We show that even though being a bigger oil producer decreases sovereign risk?because it increases a country?s ability to repay?having more oil reserves increases sovereign risk by making autarky more attractive. We develop a small open economy model of sovereign risk with incomplete international financial markets, in which optimal oil extraction and sovereign default interact. We use the model to understand the mechanisms behind the empirical facts, and show that it supports them.

JEL Classification: F34, Q32

Suggested Citation

Hamann, Franz and Mendoza, Enrique G. and Restrepo-Echavarria, Paulina, Resource Curse or Blessing? Sovereign Risk in Resource-Rich Emerging Economies (October, 2018). FRB St. Louis Working Paper No. 2018-32, Available at SSRN: https://ssrn.com/abstract=3288399 or http://dx.doi.org/10.20955/wp.2018.032

Franz Hamann (Contact Author)

Central Bank of Colombia ( email )

Carrera 7 #14-78
3551 de Bogotá
Colombia

Enrique G. Mendoza

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

HOME PAGE: http://www.sas.upenn.edu/~egme/index.html

Paulina Restrepo-Echavarria

Federal Reserve Banks - Federal Reserve Bank of St. Louis

P.O. Box 442
St. Louis, MO 63166-0442
United States

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