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Immunity from the resource curse? The long run impact of commodity price volatility: evidence from Canada, 1900–2005

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  • Ian Keay

    () (Department of Economics, Queen's University, Kingston, ON, Canada)

Abstract

This paper documents the channels through which commodity price volatility can affect resource intensive industries’ investment decisions, production levels and profitability. Over the very long run, the Canadian forestry sector was not immune from the negative effects of commodity price volatility. However, the long run averages mask dynamic and asymmetric patterns in the sector’s responses to price volatility. The supply of investment funds from formal-external sources was suppressed during episodes of high and rising commodity price volatility, but insensitive to low and falling volatility. These effects weakened as the economy matured. The accumulation of reproducible and natural capital was affected by commodity price volatility through an investment supply channel that was also asymmetric, but in this case, the effect was strongest during low and falling volatility. These results show how a maturing economy with diversified investment opportunities can become increasingly immune from the negative effects of commodity price volatility.

Suggested Citation

  • Ian Keay, 2015. "Immunity from the resource curse? The long run impact of commodity price volatility: evidence from Canada, 1900–2005," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 9(3), pages 333-358, september.
  • Handle: RePEc:afc:cliome:v:9:y:2015:i:3:p:333-358
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    File URL: http://dx.doi.org/10.1007/s11698-014-0118-6
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    Keywords

    Commodity price volatility; Resource-based growth; Early industrialization;

    JEL classification:

    • N52 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries - - - U.S.; Canada: 1913-
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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