Resource Curse or Blessing? Sovereign Risk in Resource-Rich Emerging Economies
61 Pages Posted: 27 Nov 2018 Last revised: 27 Nov 2019
Date Written: October, 2018
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
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