Federal Reserve Bank of St. Louis
Resource Curse or Blessing? Sovereign Risk in Resource-Rich Emerging Economies
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.
Cite this item
Franz Hamann & Enrique G. Mendoza & Paulina Restrepo-Echavarria, Resource Curse or Blessing? Sovereign Risk in Resource-Rich Emerging Economies, Federal Reserve Bank of St. Louis, Working Papers 2018-32, 01 Oct 2018.
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
Keywords: Sovereign Risk; Oil Production; Oil Reserves; Oil Price Swings
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