We develop an idea from Arthur Lewis’ paper on unlimited supplies of labor to model the longrun behavior of the prices of primary commodity produced by poor countries. Commodity supply is assumed infinitely elastic in the long run, and the rate of growth of supply responds to the excess of the current price over the long run supply price. Demand is linked to the level of world income and to the price of the commodity, so that price is stationary around its supply price, and commodity supply and world income are cointegrated. The model is fitted to long-run historical data.
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Paper provided by Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies. in its series Working Papers with number
201.
Find related papers by JEL classification: E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles F1 - International Economics - - Trade O1 - Economic Development, Technological Change, and Growth - - Economic Development
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