Mohaddes, K. and Raissi, M.

Do sovereign wealth funds dampen the negative effects of commodity price volatility?

Journal of Commodity Markets

Vol. 8 pp. 18-27 (2017)

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).

Keywords: Economic growth, Commodity prices, Volatility, Sovereign wealth funds

JEL Codes: C23, E32, F43, O13, O40

Author links: Kamiar Mohaddes

Publisher's Link: https://www.sciencedirect.com/science/article/pii/S2405851317300181