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A model of commodity prices after Sir Arthur Lewis

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Author Info

  • Angus Deaton

    (Princeton University)

  • Guy Laroque

    (INSEE, Paris)

Abstract

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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Bibliographic Info

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.

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Date of creation: Jun 2002
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Handle: RePEc:pri:rpdevs:deaton_laroque_commodity_sirarthurlewis

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Keywords: Commodity prices; Sir Arthur Lewis; World income; Cointegration;

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References

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  1. Deaton, Angus & Laroque, Guy, 1996. "Competitive Storage and Commodity Price Dynamics," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 896-923, October.
  2. Halvorsen, Robert & Smith, Tim R, 1991. "A Test of the Theory of Exhaustible Resources," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 123-40, February.
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Citations

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Cited by:
  1. Rabah Arezki & Daniel Lederman & Hongyan Zhao, 2012. "The Relative Volatility of Commodity Prices: A re-appraisal," OxCarre Working Papers 070, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  2. Matthias Basedau, 2005. "Context Matters – Rethinking the Resource Curse in Sub-Saharan Africa," GIGA Working Paper Series 01, GIGA German Institute of Global and Area Studies.
  3. repec:hal:wpaper:hal-00630711 is not listed on IDEAS
  4. Fu, Xiaolan & Kaplinsky, Raphael & Zhang, Jing, 2012. "The Impact of China on Low and Middle Income Countries’ Export Prices in Industrial-Country Markets," World Development, Elsevier, vol. 40(8), pages 1483-1496.
  5. Catherine Araujo Bonjean & Jean-François Brun, 2008. "Pouvoir de marché dans la filière cacao : l’hypothèse de Prebisch – Singer revisitée," Économie et Prévision, Programme National Persée, vol. 186(5), pages 133-144.
  6. Arango, Santiago & Larsen, Erik, 2011. "Cycles in deregulated electricity markets: Empirical evidence from two decades," Energy Policy, Elsevier, vol. 39(5), pages 2457-2466, May.
  7. Arango, Santiago & Moxnes, Erling, 2012. "Commodity cycles, a function of market complexity? Extending the cobweb experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 321-334.
  8. Cafiero, Carlo & Bobenrieth H., Eugenio S.A. & Bobenrieth H., Juan R.A. & Wright, Brian D., 2011. "The empirical relevance of the competitive storage model," Journal of Econometrics, Elsevier, vol. 162(1), pages 44-54, May.
  9. Jann Lay & Toman Omar Mahmoud, 2004. "Bananas, Oil, and Development: Examining the Resource Curse and Its Transmission Channels by Resource Type," Kiel Working Papers 1218, Kiel Institute for the World Economy.
  10. Norbert Funke & Weifeng Wu & Yanliang Miao, 2011. "Reviving the Competitive Storage Model," IMF Working Papers 11/64, International Monetary Fund.
  11. Mirzabaev, Alisher & Tsegai, Daniel W., 2012. "Effects of weather shocks on agricultural commodity prices in Central Asia," Discussion Papers 140769, University of Bonn, Center for Development Research (ZEF).
  12. Heun, Michael & Schlink, Torsten, 2004. "Early warning systems of financial crises: implementation of a currency crisis model for Uganda," Frankfurt School - Working Paper Series 59, Frankfurt School of Finance and Management.
  13. Melisso Boschi & Luca Pieroni, 2008. "Aluminium market and the macroeconomy," Quaderni del Dipartimento di Economia, Finanza e Statistica 42/2008, Università di Perugia, Dipartimento Economia, Finanza e Statistica.
  14. Matthias Basedau, 2005. "Context Matters – Rethinking the Resource Curse in Sub-Saharan Africa," Economic History 0508002, EconWPA.
  15. repec:hal:cesptp:hal-00630711 is not listed on IDEAS
  16. Lopez, Ramon E. & Stocking, Andrew, 2009. "Bringing Growth Theory "Down to Earth"," Working Papers 48944, University of Maryland, Department of Agricultural and Resource Economics.
  17. 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.
  18. Erten, Bilge & Ocampo, José Antonio, 2013. "Super Cycles of Commodity Prices Since the Mid-Nineteenth Century," World Development, Elsevier, vol. 44(C), pages 14-30.

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