TFP Growth and Commodity Prices in Emerging Economies

In this article we aim at empirically testing cross-country impacts of commodity prices shocks to aggregate Total Factor Productivity (TFP) growth for a sample of emerging economies. Under a growth accounting framework, we estimate country-specific TFP growth (1992–2014) and select their robust determinants by means of a Bayesian Model Averaging approach. To identify the effects of structural shocks, we propose a panel Bayesian VAR and compute cyclically-adjusted TFP growth net of demand shocks (i.e., output gap) and commodity prices. Our results suggest that: (i) the relationship of commodity prices and TFP growth has been very high in small commodity-exporting economies (i.e., an increase of 10% commodity prices is associated with a sizable expansion of TFP growth in a year for an average commodity exporter); (ii) albeit our evidence is not sufficient to empirically distinguish among theoretical explanations, our results favor an interpretation that weights short-term effects of commodity prices on productivity, either through transitional dynamics to the manufacturing sector or through mismeasurement of TFP; and (iii) cyclically adjusted TFP growth highlights the importance of negative supply shocks in commodity-exporting countries. All in all, much of the increase in TFP growth in the last decade was related to a favorable cyclical environment, a result that may raise significant policy implications for commodity-dependent economies.