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Macroeconomic and Sectoral Effects of Terms-Of-Trade Shocks

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  • International Monetary Fund

Abstract

This paper investigates the impact of long-run terms-of-trade shocks. Analytically, we show that, if capital goods are largely importable or the labor supply is sufficiently elastic, then natural-resource booms increase aggregate investment and worsen the current account, but Dutch ‘Disease’ effects are weak. We then examine 18 oil-exporting developing countries during 1965-89. Favorable terms-of-trade shocks increase investment and (especially government) consumption, but reduce medium-term savings; hence, the current account deteriorates. Nontradable output increases, in response to real appreciations, but Dutch Disease effects are strikingly absent. Investment, consumption, and nontradable output respond more to a terms-of-trade decline than to an increase.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 99/134.

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Length: 56
Date of creation: 01 Oct 1999
Date of revision:
Handle: RePEc:imf:imfwpa:99/134

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Cited by:
  1. Elbadawi, Ibrahim A. & Kaltani, Linda & Schmidt-Hebbel, Klaus, 2007. "Post-conflict aid, real exchange rate adjustment, and catch-up growth," Policy Research Working Paper Series 4187, The World Bank.
  2. Chowdhury, Abdur R., 2003. "Do asymmetric terms of trade shocks affect private savings in a transition economy?," BOFIT Discussion Papers 3/2003, Bank of Finland, Institute for Economies in Transition.
  3. Ali Alichi & Rabah Arezki, 2009. "An Alternative Explanation for the Resource Curse," IMF Working Papers 09/112, International Monetary Fund.
  4. Ali Alichi & Rabah Arezki, 2012. "An alternative explanation for the resource curse: the income effect channel," Applied Economics, Taylor & Francis Journals, vol. 44(22), pages 2881-2894, August.
  5. Abdur R Chowdhury, 2004. "Private Savings in Transition Economies: Are there Terms of Trade Shocks?," Comparative Economic Studies, Palgrave Macmillan, vol. 46(4), pages 487-514, December.
  6. Abdur R. Chowdhury, 2003. "Do asymmetric terms of trade shocks affect private savings in a transition economy?," Macroeconomics 0303006, EconWPA.
  7. Kareem Ismail & Rabah Arezki, 2010. "Boom-Bust Cycle, Asymmetrical Fiscal Response and the Dutch Disease," IMF Working Papers 10/94, International Monetary Fund.
  8. Paul Cashin & Christopher J. Kent, 2003. "The Response of the Current Account to Terms of Trade Shocks," IMF Working Papers 03/143, International Monetary Fund.
  9. Roberto Álvarez E. & J. Rodrigo Fuentes S., 2006. "El “Síndrome Holandés”: Teoría y Revisión de la Experiencia Internacional," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 9(3), pages 97-108, December.

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