Natural Resources and Sovereign Risk in Emerging Economies: A Curse and a Blessing

Franz Hamann, Enrique Mendoza and Paulina Restrepo-Echavarria

No 2018-32, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Emerging economies that are large oil producers have sizable external debt, their country risk rises when oil prices fall, and several of them have defaulted at least once since 1979. Moreover, while oil and non-oil output reduce country risk on impact and in the long-run, oil reserves reduce it marginally on impact but increase it in the long-run. We propose a model of sovereign default and oil extraction consistent with these observations. The sovereign manages oil reserves strategically to make default less painful by altering the value of autarky, and hence its sustainable debt falls. All else equal, default is less likely in states in which reserves or oil prices are higher, or non-oil GDP is lower, but the equilibrium dynamics of reserves and country risk in response to oil-price shocks switch from negatively correlated on impact to positively correlated for several years.

JEL-codes: F34 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2018-10-01, Revised 2023-03-17
New Economics Papers: this item is included in nep-dge, nep-ene and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://s3.amazonaws.com/real.stlouisfed.org/wp/2018/2018-032.pdf Full text (application/pdf)
https://doi.org/10.20955/wp.2018.032 https://doi.org/10.20955/wp.2018.032 (text/html)

Related works:
Working Paper: Natural Resources and Sovereign Risk in Emerging Economies: A Curse and a Blessing (2023)
Working Paper: Natural Resources and Sovereign Risk in Emerging Economies: A Curse and a Blessing (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2018-032

Ordering information: This working paper can be ordered from

DOI: 10.20955/wp.2018.032

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Scott St. Louis ().