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Commodity Windfalls, Polarization, and Net Foreign Assets: Panel Data Evidence on the Voracity Effect

Rabah Arezki () and Markus Brückner ()

No 2011-06, School of Economics Working Papers from University of Adelaide, School of Economics

Abstract: This paper examines the effect that windfalls from international commodity price booms have on net foreign assets in a panel of 145 countries during the period 1970-2007. The main finding is that windfalls from international commodity price booms lead to a significant increase in net foreign assets, but only in countries that are ethnically homogeneous. In ethnically polarized countries, net foreign assets significantly decreased. To explain this asymmetry, the paper shows that in ethnically polarized countries commodity windfalls lead to large increases in government spending, political corruption, and the risk of expropriation, with no overall effect on GDP per capita growth. The paper's findings are consistent with theoretical models of the current account that have a built-in voracity effect.

Keywords: commodity windfalls; net foreign assets, polarization, political economy (search for similar items in EconPapers)
JEL-codes: F32 Q33 Z10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-opm
Date: 2011-01
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Related works:
Journal Article: Commodity windfalls, polarization, and net foreign assets: Panel data evidence on the voracity effect (2012) Downloads
Working Paper: Commodity Windfalls, Polarization, and Net Foreign Assets:Panel Data Evidence on the Voracity Effect (2012) Downloads
Working Paper: Commodity Windfalls, Polarization, and Net Foreign Assets: Panel Data Evidence on the Voracity Effect (2011) Downloads
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