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Natural Capital and Sovereign Bonds (English)

Natural capital is related to government bonds through the macroeconomy and credit risks. This paper estimates this relationship from the long-term, between-country view and the short-term, within-country view. The paper cautions against the former, as it is dominated by income differences. These are de facto ingrained, as they cannot be overcome by short-term policy efforts. The within-country view is unaffected by the ingrained income bias and leaves room for recent natural capital changes to affect bond yields. The paper finds that non-renewables (fossil fuels and mineral assets) raise bond yields, possibly due to the resource curse. Renewables (forests and agricultural wealth) lower borrowing costs because they are economically worthwhile investments. Protected areas are more likely to be luxury investments.


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    Policy Research Working Paper

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    The World Region,

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    Natural Capital and Sovereign Bonds

  • Keywords

    natural capital; protected area; bond yield; marginal productivity of capital; borrowing cost; real interest rate; greenhouse gas emission; global bond market; long-run growth; local currency bond; global bond index; credit quality rating; natural wealth; value of land; aggregate production function; return of capital; government bond index; crop yield data; agricultural land area; risk of default; sovereign credit risk; bond market development; social and environmental; billion people; Credit Risk Rating; million people; high yield bond; sovereign bond market; forest genetic resource; interest rate risk; economies in transition; high default risk; exchange rate regime; natural resource curse; long-term bond yield; crop and livestock; central government debt; price discovery process; class of model; Rule of Law; price of good; secondary bond market; renewable energy source; sustainable farming practice; domestic capital market; emerging market bond; drinking water treatment; Marine Protected Area; Marine Protected Areas; long-term debt rating; exchange rate volatility; emerging market economy; capital market development; European Economic Area; long-term finance; renewable resource; Natural Resources; income bias; yield curve; Organic Agriculture



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Natural Capital and Sovereign Bonds (English). Policy Research working paper,no. WPS 9606 Washington, D.C. : World Bank Group.