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Commodity Prices and the Terms of Trade

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  • Bidarkota, Prasad
  • Crucini, Mario J

Abstract

On combining national terms-of-trade data for developing countries with world prices of internationally traded primary commodities, it is found that variation in the world prices of three or fewer key exported commodities account for 50% or more of the annual variation in the terms of trade of a typical developing country. A considerable fraction of the variation is specific to a particular commodity and, given that the overall importance of primary commodities differs across developing countries, it is possible to account for much of the heterogeneity across them. It is concluded that commodity price fluctuations should be central features of two related literatures: studies of business cycle transmission across developing and industrialized nations, and empirical work aimed at constructing perpetual claims on developing country incomes as suggested by Shiller in 1995. Copyright 2000 by Blackwell Publishing Ltd.

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Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 8 (2000)
Issue (Month): 4 (November)
Pages: 647-66

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Handle: RePEc:bla:reviec:v:8:y:2000:i:4:p:647-66

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  1. Phillips, P.C.B., 1986. "Understanding spurious regressions in econometrics," Journal of Econometrics, Elsevier, Elsevier, vol. 33(3), pages 311-340, December.
  2. Gene M. Grossman & Assaf Razin, 1983. "International Capital Movements Under Uncertainty," NBER Working Papers 1075, National Bureau of Economic Research, Inc.
  3. Cuddington, John T & Urzua, Carlos M, 1989. "Trends and Cycles in the Net Barter Terms of Trade: A New Approach," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 99(396), pages 426-42, June.
  4. Angus Deaton & Guy Laroque, 1990. "On The Behavior of Commodity Prices," NBER Working Papers 3439, National Bureau of Economic Research, Inc.
  5. Peter Wickham & Carmen Reinhart, 1994. "Commodity Prices," IMF Working Papers 94/7, International Monetary Fund.
  6. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(6), pages 971-87, December.
  7. Robert J. Shiller, 1993. "Aggregate Income Risks and Hedging Mechanisms," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1048, Cowles Foundation for Research in Economics, Yale University.
  8. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, Elsevier, vol. 2(2), pages 111-120, July.
  9. Bleaney, Michael F & Greenaway, David, 1993. "Long-Run Trends in the Relative Price of Primary Commodities and in the Terms of Trade of Developing Countries," Oxford Economic Papers, Oxford University Press, vol. 45(3), pages 349-63, July.
  10. Sapsford, D, 1985. "The Statistical Debate on the Net Barter Terms of Trade between Primary Commodities and Manufactures: A Comment and Some Additional Evidence," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 95(379), pages 781-88, September.
  11. Michael A. Kouparitsas, 1997. "North-South terms of trade: an empirical investigation," Working Paper Series, Macroeconomic Issues, Federal Reserve Bank of Chicago WP-97-05, Federal Reserve Bank of Chicago.
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