Resource Curse or Blessing? Sovereign Risk in Emerging Economies

Franz Hamann, Enrique Mendoza and Paulina Restrepo-Echavarria

No 1235, 2018 Meeting Papers from Society for Economic Dynamics

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.

Date: 2018
New Economics Papers: this item is included in nep-dge, nep-ene and nep-opm
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:red:sed018:1235

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