Mohaddes, K. and Raissi, M.
Do Sovereign Wealth Funds Dampen the Negative Effects of Commodity Price Volatility?
CWPE1710
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
PDF: https://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1710.pdf 
Open Access Link: https://doi.org/10.17863/CAM.7851
