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Liberalisation of tropical commodity market and adding-up problem: A Bound test approach

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  • V. Dhanya

    (Centre for Development Studies)

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    Abstract

    The paper examines the effect of commodity market liberalisation on developing countries by taking the case of tropical products. This issue assumes importance in the context of developing countries characterised as they are by heavy dependence on commodity exports. Theoretically, commodity market liberalisation could adversely affect the terms of trade of exporting countries, as the price and income elasticity of demand for the commodities are relatively low. The problem arises as the welfare effects of unilateral liberalisation by an individual country having a small market share differ from the multilateral liberalisation by a group of producing countries who collectively constitute a major share of the market. This collective liberalisation in most of the cases can result in a decline in prices. In this paper we examine this phenomenon the adding up problem- using Bound Test Procedure which is an advanced approach for testing the existence of long run relationship. The major finding of the study is that along with product specificities, export structure of the countries concerned is also an important factor in determining the adding up problem.

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    Bibliographic Info

    Paper provided by Centre for Development Studies, Trivendrum, India in its series Centre for Development Studies, Trivendrum Working Papers with number 399.

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    Length: 43 pages
    Date of creation: May 2008
    Date of revision:
    Handle: RePEc:ind:cdswpp:399

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    Related research

    Keywords: Tropical commodities; market liberalisation; Adding up Problem;

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    1. Lucrezia Reichlin & Peter Rappoport, 1989. "Segmented trends and non-stationary time series," ULB Institutional Repository 2013/10169, ULB -- Universite Libre de Bruxelles.
    2. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
    3. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    4. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    5. Christopher L. Gilbert & Panos Varangis, 2003. "Globalization and International Commodity Trade with Specific Reference to the West African Cocoa Producers," NBER Working Papers 9668, National Bureau of Economic Research, Inc.
    6. Akiyama, Takamasa & Larson, Donald F. & DEC, 1994. "The adding-up problem : strategies for primary commodity exports in sub-Saharan Africa," Policy Research Working Paper Series 1245, The World Bank.
    7. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
    8. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
    9. Cline, William R., 1982. "Can the East Asian model of development be generalized?," World Development, Elsevier, vol. 10(2), pages 81-90, February.
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