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Commodity price uncertainty in developing countries


  • Jan Dehn


Commodity export price uncertainty is typically measured as the standard deviation of the terms of trade, but this approach encounters at least three objections. First, terms of trade indices are unsuitable as proxies for commodity price movements per se. Secondly, the shortness of terms of trade time series makes them inappropriate as a basis for constructing time varying uncertainty measures. Thirdly, simple standard deviation measures ignore the distinction between predictable and unpredictable elements in the price process, and therefore risk overstating uncertainty. The paper examines the features of commodity price uncertainty in developing countries using a new data set of unique quarterly aggregate commodity price indices for 113 developing countries over the period 1957Q1-1997Q4. A total of six different uncertainty measures are constructed, which confirm the importance of distinguishing between predictable and unpredictable components in the price process when measuring uncertainty. A a positive and highly significant relationship between commodity export concentration and commodity price uncertainty is found for all the measures. No obvious link is found between a country’s regional affiliation and its exposure to uncertainty. Similarly, there is no apparent relationship between a country’s experience of uncertainty and the type of commodities which dominates its exports. The exception is oil producers, which face greater uncertainty. The greater uncertainty faced by these countries can, however, be attributed almost exclusively to discrete and well publicised discrete oil shocks. A GARCH based measure of uncertainty indicates considerable time variation in uncertainty. Uncertainty is sometimes characterised by discrete spikes, while uncertainty in countries exhibits a secular increase in uncertainty over time. The majority of countries have seen uncertainty which exhibits considerable persistence. It is not clear what lies behind the time variation in uncertainty, which cannot be explained with reference to relatively time invarying export concentration.

Suggested Citation

  • Jan Dehn, 2000. "Commodity price uncertainty in developing countries," CSAE Working Paper Series 2000-12, Centre for the Study of African Economies, University of Oxford.
  • Handle: RePEc:csa:wpaper:2000-12

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    References listed on IDEAS

    1. Paul Cashin & Hong Liang & C. John McDermott, 2000. "How Persistent Are Shocks to World Commodity Prices?," IMF Staff Papers, Palgrave Macmillan, vol. 47(2), pages 1-2.
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    3. Angus Deaton & Guy Laroque, 1992. "On the Behaviour of Commodity Prices," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 1-23.
    4. Clements,Michael & Hendry,David, 1998. "Forecasting Economic Time Series," Cambridge Books, Cambridge University Press, number 9780521632423, March.
    5. Cochrane, John H., 1991. "A critique of the application of unit root tests," Journal of Economic Dynamics and Control, Elsevier, vol. 15(2), pages 275-284, April.
    6. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    7. Paul Cashin & C John McDermott & Alasdair Scott, 1999. "The myth of co-moving commodity prices," Reserve Bank of New Zealand Discussion Paper Series G99/9, Reserve Bank of New Zealand.
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    Cited by:

    1. Williams, Andrew, 2011. "Shining a Light on the Resource Curse: An Empirical Analysis of the Relationship Between Natural Resources, Transparency, and Economic Growth," World Development, Elsevier, vol. 39(4), pages 490-505, April.
    2. Paul J. Burke & Andrew Leigh, 2010. "Do Output Contractions Trigger Democratic Change?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 124-157, October.
    3. Paul Collier & Benedikt Goderis, 2009. "Structural policies for shock-prone developing countries," Oxford Economic Papers, Oxford University Press, vol. 61(4), pages 703-726, October.
    4. Tony Addison & Atanu Ghoshray & Michalis P. Stamatogiannis, 2016. "Agricultural Commodity Price Shocks and Their Effect on Growth in Sub-Saharan Africa," Journal of Agricultural Economics, Wiley Blackwell, vol. 67(1), pages 47-61, February.
    5. Musayev, Vusal, 2014. "Commodity Price Shocks, Conflict and Growth: The Role of Institutional Quality and Political Violence," MPRA Paper 59786, University Library of Munich, Germany.
    6. Joël CARIOLLE, 2012. "Measuring macroeconomic volatility - Applications to export revenue data, 1970-2005," Working Papers I14, FERDI.
    7. Collier, Paul & Dehn, Jan, 2001. "Aid, shocks, and growth," Policy Research Working Paper Series 2688, The World Bank.
    8. Hélène Ehrhart & Samuel Guerineau, 2012. "Commodity price volatility and Tax revenues: Evidence from developing countries," Working Papers halshs-00658210, HAL.
    9. Paul Collier & Benedikt Goderis, 2007. "Commodity Prices, Growth, and the Natural Resource Curse: Reconciling a Conundrum," CSAE Working Paper Series 2007-15, Centre for the Study of African Economies, University of Oxford.
    10. Benedikt Goderis & Samuel W. Malone, 2011. "Natural Resource Booms and Inequality: Theory and Evidence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113, pages 388-417, 06.

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