Commodity price uncertainty and shocks: implications for economic growth
It has long been believed that commodity price variability causes problems for primaryproducing developing countries, but there is less agreement about which particular manifestations of commodity price movements matter to developing countries. This paper tests the effects of ex post shocks and ex ante price uncertainty on economic growth using the Burnside and Dollar (1997) data set. The shock and uncertainty variables are constructed using a new data set of unique aggregate commodity price indices for 113 developing countries over the period 1957Q1-1997Q4. The analysis shows that per capita growth rates are significantly reduced by large discrete negative commodity price shocks. The magnitude of the effect of negative shocks on growth is very substantial, and appears to work independently of investment, which suggests that adjustment is achieved through severe reductions in capacity utilization. Negative shocks remain highly significant after controlling for government economic policy and institutional quality, which indicates that the result is not attributable exclusively to inappropriate policy responses on the part of governments. The paper also shows that positive shocks have no lasting impact on growth, which is consistent with the findings of both Deaton and Miller (1995) and Collier and Gunning (1999a), but overturns an earlier result which suggested that the long run effects of positive temporary shocks are negative. The third key result is that ex ante uncertainty does not affect growth, which holds for nine different definitions of uncertainty. Hence, what reduces growth is not the prospect of volatile world prices, but the actual realizations of negative shocks. The results are robust to changes in sample composition, changing the time series dimensions of the data, instrumenting for endogenous regressors, and across different estimation methods.
|Date of creation:||2000|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +44-(0)1865 271084
Fax: +44-(0)1865 281447
Web page: http://www.csae.ox.ac.uk/
More information through EDIRC
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.:
- Gyimah-Brempong, Kwabena & Traynor, Thomas L, 1999. "Political Instability, Investment and Economic Growth in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 8(1), pages 52-86, March.
When requesting a correction, please mention this item's handle: RePEc:csa:wpaper:2000-10. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Richard Payne)
If references are entirely missing, you can add them using this form.