Commodity Prices and Macroeconomic Management in Africa

This paper examines the empirical consequences of commodity price booms in a cross-section of African countries and challenges the conventional wisdom that commodity price booms are so mismanaged as to have been generally harmful. Although there is much heterogeneity in the individual country experience, African countries grow faster when the prices of their exports are increasing rather than when prices are falling and perhaps one fifth of the decline in the rate of economic growth in Africa in 1980-85 as compared with 1970-75 can be attributed to the behavior of commodity prices. Although it is true that the countries that experienced commodity price booms in the late 1970s increased their long-term international debt then and in the early 1980s, so did countries that experienced no booms, or that faced declining world prices for their exports, so that there is no systematic evidence of an association between commodity price booms and the accumulation of debt. There is more evidence of a link between commodity prices and inflation, though the effect is modest once domestic price deflators have been purged of the automatic effects associated with the increase in world prices of exports.