In a nutshell
- Commodity price volatility harms economic growth of natural resource dependent countries, which tends to result in disappointing long-term economic performance for these countries.
- These negative effects operate through lower accumulation of physical capital and lower TFP.
- Having a Sovereign Wealth Fund can mitigate such negative growth effects, especially in countries that enjoy higher-quality institutions (and hence less pro-cyclical fiscal policies).
- Our results have strong policy implications, including better management of volatility in resource income by setting up forward-looking institutions, and improvements in macroeconomic policy frameworks.
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