Commodity Price Volatility and the Sources of Growth

January 1, 2012

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Commodity Price Volatility and the Sources of Growth, (USA: International Monetary Fund, 2012) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper studies the impact of the level and volatility of the commodity terms of trade on economic growth, as well as on the three main growth channels: total factor productivity, physical capital accumulation, and human capital acquisition. We use the standard system GMM approach as well as a cross-sectionally augmented version of the pooled mean group (CPMG) methodology of Pesaran et al. (1999) for estimation. The latter takes account of cross-country heterogeneity and cross-sectional dependence, while the former controls for biases associated with simultaneity and unobserved country-specific effects. Using both annual data for 1970-2007 and five-year non-overlapping observations, we find that while commodity terms of trade growth enhances real output per capita, volatility exerts a negative impact on economic growth operating mainly through lower accumulation of physical capital. Our results indicate that the negative growth effects of commodity terms of trade volatility offset the positive impact of commodity booms; and export diversification of primary commodity abundant countries contribute to faster growth. Therefore, we argue that volatility, rather than abundance per se, drives the "resource curse" paradox.

Subject: Commodities, Commodity price fluctuations, Commodity prices, Human capital, Labor, Prices, Production, Total factor productivity

Keywords: Commodity exporter, Commodity price booms, Commodity price fluctuations, Commodity prices, Commodity terms of trade growth, Commodity terms of trade growth series, Commodity terms of trade index, Commodity terms of trade volatility, CTOT variable, Global, Growth, Growth rate, Human capital, Resource curse, Terms of trade volatility, Total factor productivity, Volatility, WP

Publication Details

Pages:

45
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/012
Stock No:

WPIEA2012012
ISBN:

9781463931179
ISSN:

1018-5941

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