Working Paper

Resource Curse or Blessing? Sovereign Risk in Resource-Rich Emerging Economies


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, and show that it supports them.

Keywords: Sovereign Risk; Oil Production; Oil Reserves; Oil Price Swings;

JEL Classification: F34; Q32;

https://doi.org/10.20955/wp.2018.032

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Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2019-10-31

Number: 2018-32