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Terms of Trade Shocks and Economic Recovery

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Author Info

  • Patrick A. Imam
  • Eleonara Granziera
  • Norbert Funke

Abstract

This paper identifies factors that contribute to a fast recovery in growth after persistent negative terms of trade shocks, using a sample of 159 countries for 1970-2006. The results suggest that policies matter. Fast recoveries are fairly robustly related to real exchange rate depreciation and improvements in government stability and the institutional environment. A timely increase in aid may also support recovery.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/36.

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Length: 23
Date of creation: 01 Feb 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/36

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Related research

Keywords: Terms of trade; Exchange rate depreciation; Economic growth; terms of trade shocks; trade shocks; trade shock; terms of trade shock; aggregate demand; relative prices; exchange rate regime; transition economies; trade openness; external shocks; trade growth; open economies; inflation; per capita income; export prices; world market; domestic prices; trade models; terms of trade improvement; trade changes; importing countries; importable goods; world economy; relative price; endogenous growth; investor confidence; oil-importing countries; tariff cuts; commodity prices; exporting countries; imported inputs; world market price; exchange rate regimes; oil shock; real wages; oil prices; export sector; annual inflation; monetary economics; macroeconomic performance; exchange rate policy; partner countries;

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References

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  1. Valerie Cerra & Sweta C. Saxena, 2005. "Growth Dynamics: The Myth of Economic Recovery," Macroeconomics 0508008, EconWPA.
  2. Stephen Bond & Anke Hoeffler & Jonathan Temple, 2001. "GMM Estimation of Empirical Growth Models," Economics Papers 2001-W21, Economics Group, Nuffield College, University of Oxford.
  3. Jerzmanowski, Michal, 2006. "Empirics of hills, plateaus, mountains and plains: A Markov-switching approach to growth," Journal of Development Economics, Elsevier, vol. 81(2), pages 357-385, December.
  4. Mendoza, Enrique G., 1997. "Terms-of-trade uncertainty and economic growth," Journal of Development Economics, Elsevier, vol. 54(2), pages 323-356, December.
  5. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September.
  6. Rodrik, Dani & Subramanian, Arvind & Trebbi, Francesco, 2002. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," CEPR Discussion Papers 3643, C.E.P.R. Discussion Papers.
  7. Broda, Christian, 2004. "Terms of trade and exchange rate regimes in developing countries," Journal of International Economics, Elsevier, vol. 63(1), pages 31-58, May.
  8. Pritchett, Lant, 2000. "Understanding Patterns of Economic Growth: Searching for Hills among Plateaus, Mountains, and Plains," World Bank Economic Review, World Bank Group, vol. 14(2), pages 221-50, May.
  9. Marianne Baxter & Michael A. Kouparitsas, 2000. "What Causes Fluctuations in the Terms of Trade?," NBER Working Papers 7462, National Bureau of Economic Research, Inc.
  10. 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.
  11. Paolo Mauro & Törbjörn I. Becker, 2006. "Output Drops and the Shocks That Matter," IMF Working Papers 06/172, International Monetary Fund.
  12. Stephen Bond & Anke Hoeffler, 2001. "GMM Estimation of Empirical Growth Models," Economics Series Working Papers 2001-W21, University of Oxford, Department of Economics.
  13. William Easterly, 2006. "Reliving the 1950s: the big push, poverty traps, and takeoffs in economic development," Journal of Economic Growth, Springer, vol. 11(4), pages 289-318, December.
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Citations

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Cited by:
  1. Camelia Minoiu & Patrick A. Imam, 2008. "Mauritius," IMF Working Papers 08/212, International Monetary Fund.
  2. BARBALAU, Adelina Georgiana, 2012. "Inflation targeting: dead or alive?," Romanian Distribution Committee Magazine, Romanian Distribution Committee, vol. 3(3), pages 41-49, 09.
  3. Souleymane DIARRA, 2012. "Effets des Chocs de Produits de Base sur la Mobilisation des Recettes Publiques dans les Pays d'Afrique Sub-saharienne," Working Papers halshs-00658482, HAL.
  4. Antonio David & Fabiano Rodrigues Bastos & Marshall Mills, 2011. "Post-Conflict Recovery," IMF Working Papers 11/149, International Monetary Fund.
  5. Fofack, Hippolyte, 2009. "Africa and Arab Gulf states : divergent development paths and prospects for convergence," Policy Research Working Paper Series 5025, The World Bank.
  6. Lee Robinson & Alice Nicole Sindzingre, 2012. "China’s Ambiguous Impacts on Commodity-Dependent Countries: the Example of Sub-Saharan Africa (with a Focus on Zambia)," EconomiX Working Papers 2012-39, University of Paris West - Nanterre la Défense, EconomiX.
  7. Patrick A. Imam, 2008. "Rapid Current Account Adjustments," IMF Working Papers 08/233, International Monetary Fund.

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