The Impact of the Terms of Trade on Economic Development in the Periphery, 1870-1939: Volatility and Secular Change
Most countries in the periphery specialized in the export of just a handful of primary products for most of their history. Some of these commodities have been more volatile than others, and those with more volatile prices have grown slowly relative both to the industrial leaders and to other primary product exporters. This fact helps explain the growth puzzle noted by Easterly, Kremer, Pritchett and Summers more than a decade ago: that the contending fundamental determinants of growth - institutions, geography and culture - exhibit far more persistence than do the growth rates they are supposed to explain. Using a new panel database for 35 countries, this paper estimates the impact of terms of trade volatility and secular change on country performance between 1870 and 1939. Volatility was much more important for accumulation and growth than was secular change. Additionally, both effects were asymmetric between Core and Periphery, findings that speak directly to the terms of trade debates that have raged since Prebisch and Singer wrote more than 50 years ago. The paper also investigates one channel of impact, and finds that foreign capital inflows declined steeply where commodity prices were volatile.
|Date of creation:||May 2005|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Easterly, William & Kremer, Michael & Pritchett, Lant & Summers, Lawrence H., 1993.
"Good policy or good luck?: Country growth performance and temporary shocks,"
Journal of Monetary Economics,
Elsevier, vol. 32(3), pages 459-483, December.
- William Easterly & Michael Kremer & Lant Pritchett & Lawrence H. Summers, 1993. "Good Policy or Good Luck? Country Growth Performance and Temporary Shocks," NBER Working Papers 4474, National Bureau of Economic Research, Inc.
- Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, vol. 85(5), pages 1138-1151, December.
- Garey Ramey & Valerie A. Ramey, 1994. "Cross-Country Evidence on the Link Between Volatility and Growth," NBER Working Papers 4959, National Bureau of Economic Research, Inc.
- Hanan G. Jacoby & Emmanuel Skoufias, 1997. "Risk, Financial Markets, and Human Capital in a Developing Country," Review of Economic Studies, Oxford University Press, vol. 64(3), pages 311-335.
- Turnovsky, Stephen J. & Chattopadhyay, Pradip, 2003. "Volatility and growth in developing economies: some numerical results and empirical evidence," Journal of International Economics, Elsevier, vol. 59(2), pages 267-295, March.
- Stephen Turnovsky & Pradip Chattopadhyay, 1998. "Volatility and Growth in Developing Economies: Some Numerical Results and Empirical Evidence," Discussion Papers in Economics at the University of Washington 0055, Department of Economics at the University of Washington.
- Stephen Turnovsky & Pradip Chattopadhyay, 1998. "Volatility and Growth in Developing Economies: Some Numerical Results and Empirical Evidence," Working Papers 0055, University of Washington, Department of Economics.
- Spraos, John, 1980. "The Statistical Debate on the Net Barter Terms of Trade between Primary Commodities and Manufactures," Economic Journal, Royal Economic Society, vol. 90(357), pages 107-128, March.
- Luis CatÃ£o & Sandeep Kapur, 2004. "Missing Link; Volatility and the Debt Intolerance Paradox," IMF Working Papers 04/51, .
- Bleaney, Michael F & Greenaway, David, 1993. "Long-Run Trends in the Relative Price of Primary Commodities and in the Terms of Trade of Developing Countries," Oxford Economic Papers, Oxford University Press, vol. 45(3), pages 349-363, July.
- M. Ayhan Kose & Raymond Riezman, 2013. "Trade shocks and macroeconomic fluctuations in Africa," World Scientific Book Chapters, in: International Trade Agreements and Political Economy, chapter 19, pages 369-394 World Scientific Publishing Co. Pte. Ltd..
- Kose, M. Ayhan & Riezman, Raymond, 2001. "Trade shocks and macroeconomic fluctuations in Africa," Journal of Development Economics, Elsevier, vol. 65(1), pages 55-80, June.
- M. Ayhan Kose & Raymond Riezman, 1999. "Trade Shocks and Macroeconomic Fluctuations in Africa," CESifo Working Paper Series 203, CESifo Group Munich.
- M. Ayhan Kose & Raymond Riezman, 1999. "Trade Shocks and Macroeconomic Fluctuations in Africa," CSGR Working papers series 43/99, Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick.
- Basu, Parantap & McLeod, Darryl, 1991. "Terms of trade fluctuations and economic growth in developing economies," Journal of Development Economics, Elsevier, vol. 37(1-2), pages 89-110, November.
- Tornell, Aaron & Velasco, Andes, 1992. "The Tragedy of the Commons and Economic Growth: Why Does Capital Flow from Poor to Rich Countries?," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1208-1231, December.
- Angus Deaton, 1999. "Commodity Prices and Growth in Africa," Journal of Economic Perspectives, American Economic Association, vol. 13(3), pages 23-40, Summer.
- Deaton, A., 1999. "Commodity Prices and Growth in Aftica," Papers 186, Princeton, Woodrow Wilson School - Development Studies.
- Bidarkota, Prasad & Crucini, Mario J, 2000. "Commodity Prices and the Terms of Trade," Review of International Economics, Wiley Blackwell, vol. 8(4), pages 647-666, November.
- Mario Crucini & Prasad Bidarkota, 1997. "Commodity Prices and the Terms of Trade," Working Papers 98-01, Ohio State University, Department of Economics.
- Elizabeth Frankenberg & Kathleen Beegle & Bondan Sikoki & Duncan Thomas, 1999. "Health, Family Planning and Well-Being in Indonesia during an Economic Crisis: Early Results from the Indonesian Family Life Survey," Working Papers 99-06, RAND Corporation.
- Frankenberg, E. & Beegle, K. & Sikoki, B. & Thomas, D., 1999. "Health, Family Planning and Well-Being in Indonesia during an Economic Crisis: Early Results from the Indonesian Family Life Survey," Papers 99-06, RAND - Labor and Population Program.
- Mendoza, Enrique G., 1997. "Terms-of-trade uncertainty and economic growth," Journal of Development Economics, Elsevier, vol. 54(2), pages 323-356, December.
- Edward Miguel & Shanker Satyanath & Ernest Sergenti, 2004. "Economic Shocks and Civil Conflict: An Instrumental Variables Approach," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 725-753, August.
- Bleaney, Michael & Greenaway, David, 2001. "The impact of terms of trade and real exchange rate volatility on investment and growth in sub-Saharan Africa," Journal of Development Economics, Elsevier, vol. 65(2), pages 491-500, August.
- Thomas, Duncan & Beegle, Kathleen & Frankenberg, Elizabeth & Sikoki, Bondan & Strauss, John & Teruel, Graciela, 2004. "Education in a crisis," Journal of Development Economics, Elsevier, vol. 74(1), pages 53-85, June. Full references (including those not matched with items on IDEAS)