Advanced Search
MyIDEAS: Login to save this article or follow this journal

A reexamination of trends in primary commodity prices

Contents:

Author Info

  • Ghoshray, Atanu

Abstract

This paper conducts a reexamination of the Prebisch-Singer hypothesis by employing the unit root test proposed by Lee and Strazicich (2003) and Lee and Strazicich (2004) that allow for up to two structural breaks. Given the higher power of these tests compared to the Zivot and Andrews (1992) and Lumsdaine and Papell (1997) tests, rejection of the null can be considered as genuine evidence of stationarity. The main findings of this paper are that eleven out of twenty-four commodity prices are found to be difference stationary implying that shocks to these commodities tend to be permanent in nature. The remaining thirteen prices are found to exhibit trend stationary behavior with either one or two structural breaks. Most of the commodities that do not exhibit difference stationary behavior seem to contain no significant trends. There are fewer cases, in relation to past studies, of commodities that display negative trends thereby weakening the case for the Prebisch-Singer hypothesis.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6VBV-4YVJ487-1/2/9aa20abdfeb25a0b6d27d5bba10e6251
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 95 (2011)
Issue (Month): 2 (July)
Pages: 242-251

as in new window
Handle: RePEc:eee:deveco:v:95:y:2011:i:2:p:242-251

Contact details of provider:
Web page: http://www.elsevier.com/locate/devec

Related research

Keywords: Primary commodity prices Unit roots Structural change Prebisch-Singer hypothesis;

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Lee, Junsoo & List, John A. & Strazicich, Mark C., 2006. "Non-renewable resource prices: Deterministic or stochastic trends?," Journal of Environmental Economics and Management, Elsevier, vol. 51(3), pages 354-370, May.
  2. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
  3. Leybourne, S. Y. & Lloyd, T. A. & Reed, G. V., 1994. "The excess comovement of commodity prices revisited," World Development, Elsevier, vol. 22(11), pages 1747-1758, November.
  4. Nunes, Luis C & Newbold, Paul & Kuan, Chung-Ming, 1997. "Testing for Unit Roots with Breaks: Evidence on the Great Crash and the Unit Root Hypothesis Reconsidered," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(4), pages 435-48, November.
  5. Diakosavvas, Dimitris & Scandizzo, Pasquale Lucio, 1991. "Trends in the Terms of Trade of Primary Commodities, 1900-1982: The Controversy and Its Origins," Economic Development and Cultural Change, University of Chicago Press, vol. 39(2), pages 231-64, January.
  6. Reinhart, Carmen & Wickham, Peter, 1994. "Non-oil commodity prices: Cyclical weakness or secular decline?," MPRA Paper 13871, University Library of Munich, Germany.
  7. Powell, A., 1989. "Commodity And Developing Country Terms Of Trade, What Does The Long Run Show?," Economics Series Working Papers 9980, University of Oxford, Department of Economics.
  8. Grilli, Enzo R & Yang, Maw Cheng, 1988. "Primary Commodity Prices, Manufactured Goods Prices, and the Terms of Trade of Developing Countries: What the Long Run Shows," World Bank Economic Review, World Bank Group, vol. 2(1), pages 1-47, January.
  9. Pindyck, Robert S. & Rotemberg, Julio., 1987. "The excess co-movement of commodity prices," Working papers 1969-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  10. Junsoo Lee & Mark C. Strazicich, 2004. "Minimum LM Unit Root Test with One Structural Break," Working Papers 04-17, Department of Economics, Appalachian State University.
  11. Jose Antonio Ocampo & Maria Angela Parra, 2004. "The Terms Of Trade For Commodities In The Twentieth Century," International Trade 0402006, EconWPA.
  12. Deaton, Angus & Laroque, Guy, 1995. "Estimating a Nonlinear Rational Expectations Commodity Price Model with Unobservable State Variables," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(S), pages S9-40, Suppl. De.
  13. Zanias, George P., 2005. "Testing for trends in the terms of trade between primary commodities and manufactured goods," Journal of Development Economics, Elsevier, vol. 78(1), pages 49-59, October.
  14. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July.
  15. Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers 944, Cowles Foundation for Research in Economics, Yale University.
  16. 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, vol. 95(379), pages 781-88, September.
  17. David Sapsford & V.N.Balasubramanyam, . "The Long-Run Behaviour of the Relative Price of Primary Commodities: Statistical Evidence and Policy Implications," Working Papers ec7/94, Department of Economics, University of Lancaster.
  18. Lutz, Matthias & Singer, H. W., 1994. "The link between increased trade openness and the terms of trade: An empirical investigation," World Development, Elsevier, vol. 22(11), pages 1697-1709, November.
  19. Stephan Pfaffenzeller & Paul Newbold & Anthony Rayner, 2007. "A Short Note on Updating the Grilli and Yang Commodity Price Index," World Bank Economic Review, World Bank Group, vol. 21(1), pages 151-163.
  20. Deaton, A., 1999. "Commodity Prices and Growth in Aftica," Papers 186, Princeton, Woodrow Wilson School - Development Studies.
  21. Maizels, Alfred, 1994. "The continuing commodity crisis of developing countries," World Development, Elsevier, vol. 22(11), pages 1685-1695, November.
  22. Javier Le�N & Raimundo Soto, 1997. "Structural Breaks And Long-Run Trends In Commodity Prices," Journal of International Development, John Wiley & Sons, Ltd., vol. 9(3), pages 347-366.
  23. Cuddington, John T., 1992. "Long-run trends in 26 primary commodity prices : A disaggregated look at the Prebisch-Singer hypothesis," Journal of Development Economics, Elsevier, vol. 39(2), pages 207-227, October.
  24. Harvey, David I. & Leybourne, Stephen J. & Taylor, A.M. Robert, 2007. "A simple, robust and powerful test of the trend hypothesis," Journal of Econometrics, Elsevier, vol. 141(2), pages 1302-1330, December.
  25. 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.
  26. Kellard, Neil & Wohar, Mark E., 2006. "On the prevalence of trends in primary commodity prices," Journal of Development Economics, Elsevier, vol. 79(1), pages 146-167, February.
  27. 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, vol. 99(396), pages 426-42, June.
  28. Perron, P. & Rodriguez, G., 2000. "Seraching for Additive Outliers in Nonstationary Time Series," Working Papers 0005e, University of Ottawa, Department of Economics.
  29. Perron, P. & Ng, S., 1994. "Useful Modifications to Some Unit Root Tests with Dependent Errors and Their Local Asymptotic Properties," Cahiers de recherche 9427, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  30. Joseph V. Balagtas & Matthew T. Holt, 2009. "The Commodity Terms of Trade, Unit Roots, and Nonlinear Alternatives: A Smooth Transition Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(1), pages 87-105.
  31. Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
  32. Helg, Rodolfo, 1991. "A note on the stationarity of the primary commodities relative price index," Economics Letters, Elsevier, vol. 36(1), pages 55-60, May.
  33. Reinhart, Carmen & Wickham, Peter, 1994. "Commodity Prices: Cyclical Weakness or Secular Decline?," MPRA Paper 8173, University Library of Munich, Germany.
  34. Kei Kajisa & Takamasa Akiyama, 2005. "The Evolution of Rice Price Policies over Four Decades: Thailand, Indonesia and the Philippines," Oxford Development Studies, Taylor & Francis Journals, vol. 33(2), pages 305-329.
  35. Sarkar, Prabirjit & Singer, H. W., 1991. "Manufactured exports of developing countries and their terms of trade since 1965," World Development, Elsevier, vol. 19(4), pages 333-340, April.
  36. Paul Newbold & Stephan Pfaffenzeller & Anthony Rayner, 2005. "How well are long-run commodity price series characterized by trend components?," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(4), pages 479-494.
  37. Tae-Hwan Kim & Stephan Pfaffenzeller & Tony Rayner & Paul Newbold, 2003. "Testing for Linear Trend with Application to Relative Primary Commodity Prices," Journal of Time Series Analysis, Wiley Blackwell, vol. 24(5), pages 539-551, 09.
  38. Peter Wickham & Carmen Reinhart, 1994. "Commodity Prices," IMF Working Papers 94/7, International Monetary Fund.
  39. Robin L. Lumsdaine & David H. Papell, 1997. "Multiple Trend Breaks And The Unit-Root Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 212-218, May.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Ana Iregui & Jesús Otero, 2013. "The long-run behaviour of the terms of trade between primary commodities and manufactures: a panel data approach," Portuguese Economic Journal, Springer, vol. 12(1), pages 35-56, April.
  2. David Harvey & Neil Kellard & Jakob Madsen & Mark Wohar, 2012. "Trends and Cycles in Real Commodity Prices: 1650-2010," CEH Discussion Papers 010, Centre for Economic History, Research School of Economics, Australian National University.
  3. Presno, María José & Landajo, Manuel & Fernández, Paula, 2012. "Non-renewable resource prices. A robust evaluation from the stationarity perspective," MPRA Paper 42523, University Library of Munich, Germany.
  4. Ghoshray Atanu & Kejriwal Mohitosh & Wohar Mark, 2014. "Breaks, trends and unit roots in commodity prices: a robust investigation," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 18(1), pages 23-40, February.
  5. Ghoshray, A. & Perera, A., 2011. "The Model of Commodity Prices after Sir Arthur Lewis Revisited," Department of Economics Working Papers 32991, University of Bath, Department of Economics.
  6. Otero, Jesús, 2011. "The Long-Run Behaviour of the Terms of Trade between Primary Commodities and Manufactures," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  7. Samuel Bazzi, Christopher Blattman, 2011. " Economic Shocks and Conflict: The (Absence of?) Evidence from Commodity Price- Working Paper 274," Working Papers 274, Center for Global Development.
  8. Serra, Teresa & Zilberman, David, 2013. "Biofuel-related price transmission literature: A review," Energy Economics, Elsevier, vol. 37(C), pages 141-151.
  9. Presno, María José & Landajo, Manuel & Fernández, Paula, 2014. "Non-renewable resource prices: A robust evaluation from the stationarity perspective," Resource and Energy Economics, Elsevier, vol. 36(2), pages 394-416.
  10. Andaleeb Rahman, 2012. "Characterizing food prices in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2012-022, Indira Gandhi Institute of Development Research, Mumbai, India.
  11. Ghoshray, Atanu & Kejriwal, Mohitosh & Wohar, Mark E., 2011. "Breaking Trends and the Prebisch-Singer Hypothesis: A Further Investigation," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 120387, European Association of Agricultural Economists.
  12. Addison, Tony & Ghoshray, Atanu, 2014. "Agricultural Commodity Price Shocks and their Effect on Growth in Sub-Saharan Africa," 88th Annual Conference, April 9-11, 2014, AgroParisTech, Paris, France 169726, Agricultural Economics Society.
  13. Yamada, Hiroshi & Yoon, Gawon, 2014. "When Grilli and Yang meet Prebisch and Singer: Piecewise linear trends in primary commodity prices," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 193-207.
  14. Konstantin M. Wacker, 2011. "Do multinationals beat down developing countries' export prices? The impact of FDI on net barter terms of trade," Ibero America Institute for Econ. Research (IAI) Discussion Papers 211, Ibero-America Institute for Economic Research.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:deveco:v:95:y:2011:i:2:p:242-251. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.