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Macroeconomic effects of terms-of-trade shocks : the case of oil-exporting countries

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  • Spatafora, Nikola
  • Warner, Andrew

Abstract

The authors investigate the impact on economic growth and development of long-run movements in the external terms of trade, with special reference to the experience of 18 oil-exporting countries between 1973 and 1989. They argue that this sample approximates a controlled experiment for examining the impact of unanticipated -- but permanent -- shocks to the terms of trade. They analyze the sample econometrically using panel data techniques. They find that permanent terms-of-trade shocks have a strongly significant positive effect on investment, which they justify theoretically on the grounds that countries in the sample import much of their capital equipment. The shocks also have a significant positive effect on consumption. Government consumption responds almost twice as strongly as private consumption. The shocks have no effect on savings and adversely affect the trade and current account balances. There is a significant positive effect on the output of all main categories of nontradables. But Dutch disease effects are strikingly absent. Agriculture and manufacturing do not contract in reaction to an oil price increase. Dutch disease effects may be absent in part because of policy-induced output restraints in the oil sector, or because of the"enclave"nature of the oil sector, which does not participate in domestic factor markets.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1410.

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Date of creation: 31 Jan 1995
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Handle: RePEc:wbk:wbrwps:1410

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Keywords: Economic Theory&Research; Environmental Economics&Policies; Payment Systems&Infrastructure; Labor Policies; Financial Intermediation; Environmental Economics&Policies; Economic Theory&Research; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT; Financial Intermediation; Inequality;

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Cited by:
  1. Agenor, Pierre-Richard & Aizenman, Joshua, 2004. "Savings and the terms of trade under borrowing constraints," Journal of International Economics, Elsevier, Elsevier, vol. 63(2), pages 321-340, July.
  2. Tarlok Singh, 2007. "Intertemporal Optimizing Models Of Trade And Current Account Balance: A Survey," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 21(1), pages 25-64, 02.
  3. Jorge Katz & Gonzalo Bernat, 2013. "Macroeconomic Adjustment and Structural Change: The Experience of Argentina, Brazil and Chile in 2000-2010," Institutions and Economies (formerly known as International Journal of Institutions and Economies), Faculty of Economics and Administration, University of Malaya, Faculty of Economics and Administration, University of Malaya, vol. 5(2), pages 37-58, July.
  4. Serven, Luis, 1999. "Terms-of-trade shocks and optimal investment: another look at the Laursen-Metzler effect," Journal of International Money and Finance, Elsevier, Elsevier, vol. 18(3), pages 337-365.
  5. Mehrara, Mohsen & Oskoui, Kamran Niki, 2007. "The sources of macroeconomic fluctuations in oil exporting countries: A comparative study," Economic Modelling, Elsevier, Elsevier, vol. 24(3), pages 365-379, May.
  6. Mehrara, Mohsen, 2009. "Reconsidering the resource curse in oil-exporting countries," Energy Policy, Elsevier, Elsevier, vol. 37(3), pages 1165-1169, March.
  7. Rigoberto Ariel YĆ©pez-Garcia & Julie Dana, 2012. "Mitigating Vulnerability to High and Volatile Oil Prices : Power Sector Experience in Latin America and the Caribbean," World Bank Publications, The World Bank, number 9341, August.
  8. Milan Brahmbhatt & Otaviano Canuto & Ekaterina Vostroknutova, 2010. "Dealing with Dutch Disease," World Bank Other Operational Studies 10174, The World Bank.
  9. Seedwell Hove & Albert Touna Mama & Fulbert Tchana Tchana, 2012. "Terms of Trade Shocks and Inflation Targeting in Emerging Market Economies," Working Papers 273, Economic Research Southern Africa.

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