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Federal Reserve Bank of Dallas
Globalization Institute Working Papers
Do Sovereign Wealth Funds Dampen the Negative Effects of Commodity Price Volatility?
Kamiar Mohaddes
Mehdi Raissi
Abstract

This paper studies the impact of commodity terms of trade (CToT) volatility on economic growth (and its sources) in a sample of 69 commodity-dependent countries, and assesses the role of Sovereign Wealth Funds (SWFs) and quality of institutions in their long-term growth performance. Using annual data over the period 1981-2014, we employ the Cross-Sectionally augmented Autoregressive Distributive Lag (CS-ARDL) methodology for estimation to account for cross-country heterogeneity, cross-sectional dependence, and feedback effects. We find that while CToT volatility exerts a negative impact on economic growth (operating through lower accumulation of physical capital and lower TFP), the average impact is dampened if a country has a SWF and better institutional quality (hence a more stable government expenditure).


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Kamiar Mohaddes & Mehdi Raissi, Do Sovereign Wealth Funds Dampen the Negative Effects of Commodity Price Volatility?, Federal Reserve Bank of Dallas, Globalization Institute Working Papers 304, 01 Feb 2017.
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DOI: 10.24149/gwp304
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