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Matteo Ruzzante and Nelson Sobrinho
This paper investigates the dynamic impact of natural resource discoveries on government debt sustainability. We use a ‘natural experiment’ framework in which the timing of discoveries is treated as an exogenous source of within-country variation. We combine data on government debt, fiscal stress and debt distress episodes on a large panel of countries over 1970-2012, with a global repository of giant oil, gas, and mineral discoveries. We find strong and robust evidence of a ‘fiscal presource curse’, i.e., natural resources can jeopardize fiscal sustainability even before ‘the first drop of oil is pumped’. Specifically, we find that giant discoveries, mostly of oil and gas, lead to permanently higher government debt and, eventually, debt distress episodes, specially in countries with weaker political institutions and governance. This evidence suggest that the curse can be mitigated and even prevented by pursuing prudent fiscal policies and borrowing strategies, strengthening fiscal governance, and implementing transparent and robust fiscal frameworks for resource management.
Matteo Ruzzante and Nelson Sobrinho

Other Specifications V Conclusion References Figures Tables Online Appendix A Data Sources and Construction A.I Government Debt A.II Governance Indicator B Descriptive Statistics C Public Debt Trajectory in Selected Examples D Coefficient Estimates E Heterogeneity F Cumulative Responses G Robustness LIST OF FIGURES 1 Temporal Distribution of Giant Discoveries 2 Geographical Distribution of Giant Discoveries 3 Impact of Giant Discoveries on Government Debt 4 Impact of Giant Discoveries on Probability of Fiscal Crises

Matteo Ruzzante and Nelson Sobrinho

most cases, the financial assets are typically held by the Central or the General Government. The data do not include international reserves held at central banks. Despite compiling asset data from multiple sources, the information available covers only one quarter of the country-years in our panel or 171 countries. A.II Governance Indicator We rely on multiple sources to construct a governance indicator with wider coverage of country-years compared to the existing indicators. Our starting point and core source is the Kaufmann et al. (2010) ’s Worldwide