IDEAS home Printed from https://ideas.repec.org/p/csa/wpaper/2011-09.html
   My bibliography  Save this paper

Terms of Trade and Growth of Resource Economies: A Tale of Two Countries

Author

Listed:
  • Augustin Kwasi Fosu

Abstract

The current paper demonstrates a dichotomy of the growth response to changes in the barter terms of trade (TOT), employing as case studies the following two African countries: Botswana and Nigeria. Using distributed-lag analysis, the paper finds that the effect of TOT on output is positive and negative for the two countries, respectively. I interpret these results as supportive of the ‘resource curse’ hypothesis for Nigeria but not for Botswana. I further argue that the superior institutional quality (IQ) in Botswana, relative to Nigeria, is likely responsible for the contrasting results. However, Nigeria appears to be making progress on IQ, especially in the last decade. Continuing such progress would be necessary if the country was to reverse course.

Suggested Citation

  • Augustin Kwasi Fosu, 2011. "Terms of Trade and Growth of Resource Economies: A Tale of Two Countries," CSAE Working Paper Series 2011-09, Centre for the Study of African Economies, University of Oxford.
    • Handle: RePEc:csa:wpaper:2011-09
    as

    Download full text from publisher

    File URL: https://ora.ox.ac.uk/objects/uuid:1071fbd6-bc45-4707-81a8-f9f218d6944c
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. José G. Montalvo & Marta Reynal-Querol, 2005. "Ethnic Polarization, Potential Conflict, and Civil Wars," American Economic Review, American Economic Association, vol. 95(3), pages 796-816, June.
    2. 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, vol. 8(1), pages 52-86, March.
    3. William Easterly & Ross Levine, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1203-1250.
    4. Augustin Kwasi Fosu, 2001. "The Global Setting and African Economic Growth," Journal of African Economies, Centre for the Study of African Economies, vol. 10(3), pages 282-310.
    5. Deaton, Angus & Miller, Ron, 1996. "International Commodity Prices, Macroeconomic Performance and Politics in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies, vol. 5(3), pages 99-191, October.
    6. Xavier Sala-i-Martin & Arvind Subramanian, 2013. "Addressing the Natural Resource Curse: An Illustration from Nigeria," Journal of African Economies, Centre for the Study of African Economies, vol. 22(4), pages 570-615, August.
    7. 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.
    8. FOSU, Augustin Kwasi, 2008. "Democracy and growth in Africa: Implications of increasing electoral competitiveness," Economics Letters, Elsevier, vol. 100(3), pages 442-444, September.
    9. Angus Deaton, 1999. "Commodity Prices and Growth in Africa," Journal of Economic Perspectives, American Economic Association, vol. 13(3), pages 23-40, Summer.
    10. Sachs, Jeffrey D. & Warner, Andrew M., 1999. "The big push, natural resource booms and growth," Journal of Development Economics, Elsevier, vol. 59(1), pages 43-76, June.
    11. 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.
    12. Gylfason, Thorvaldur, 2001. "Natural resources, education, and economic development," European Economic Review, Elsevier, vol. 45(4-6), pages 847-859, May.
    13. Pagano, Marcello & Hartley, Michael J., 1981. "On fitting distributed lag models subject to polynomial restrictions," Journal of Econometrics, Elsevier, vol. 16(2), pages 171-198, June.
    14. Jonathan Isham & Michael Woolcock & Lant Pritchett & Gwen Busby, 2003. "The Varieties of Resource Experience: How Natural Resource Export Structures Affect the Political Economy of Economic Growth," Middlebury College Working Paper Series 0308, Middlebury College, Department of Economics.
    15. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Industrialization and the Big Push," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1003-1026, October.
    16. Easterly, William, 2001. "Can Institutions Resolve Ethnic Conflict?," Economic Development and Cultural Change, University of Chicago Press, vol. 49(4), pages 687-706, July.
    17. van Wijnbergen, Sweder J G, 1984. "The 'Dutch Disease': A Disease after All?," Economic Journal, Royal Economic Society, vol. 94(373), pages 41-55, March.
    18. World Bank, 2009. "World Development Indicators 2009," World Bank Publications - Books, The World Bank Group, number 4367.
    19. Baland, Jean-Marie & Francois, Patrick, 2000. "Rent-seeking and resource booms," Journal of Development Economics, Elsevier, vol. 61(2), pages 527-542, April.
    20. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    21. Hendry, David F. & Pagan, Adrian R. & Sargan, J.Denis, 1984. "Dynamic specification," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 18, pages 1023-1100, Elsevier.
    22. Lane, Philip R & Tornell, Aaron, 1996. "Power, Growth, and the Voracity Effect," Journal of Economic Growth, Springer, vol. 1(2), pages 213-241, June.
    23. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
    24. Paul Collier & Anke Hoeffler, 2004. "Greed and grievance in civil war," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 563-595, October.
    25. James A. Robinson & Q. Neil Parsons, 2006. "State Formation and Governance in Botswana," Journal of African Economies, Centre for the Study of African Economies, vol. 15(1), pages 100-140, April.
    26. World Bank, 2004. "African Development Indicators 2004," World Bank Publications - Books, The World Bank Group, number 13918.
    27. Paul Collier, 2000. "Ethnicity, Politics and Economic Performance," Economics and Politics, Wiley Blackwell, vol. 12(3), pages 225-245, November.
    28. Fosu, Augustin Kwasi, 1992. "Political Instability and Economic Growth: Evidence from Sub-Saharan Africa," Economic Development and Cultural Change, University of Chicago Press, vol. 40(4), pages 829-841, July.
    29. Sachs, Jeffrey D & Warner, Andrew M, 1997. "Sources of Slow Growth in African Economies," Journal of African Economies, Centre for the Study of African Economies, vol. 6(3), pages 335-376, October.
    30. Kimenyi, Mwangi S & Mbaku, John M, 1993. "Rent-Seeking and Institutional Stability in Developing Countries," Public Choice, Springer, vol. 77(2), pages 385-405, October.
    31. Augustin Kwasi Fosu, 2002. "Political Instability and Economic Growth: Implications of Coup Events in Sub‐Saharan Africa," American Journal of Economics and Sociology, Wiley Blackwell, vol. 61(1), pages 329-348, January.
    32. Augstin Kwasi Fosu, 2003. "Political Instability and Export Performance in Sub-Saharan Africa," Journal of Development Studies, Taylor & Francis Journals, vol. 39(4), pages 68-83.
    33. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross‐Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
    34. Ådne Cappelen & Lars Mjøset, 2009. "Can Norway Be a Role Model for Natural Resource Abundant Countries?," WIDER Working Paper Series RP2009-23, World Institute for Development Economic Research (UNU-WIDER).
    35. Ndulu,Benno J. & O'Connell,Stephen A. & Bates,Robert H. & Collier,Paul & Soludo,Chukwuma C., 2009. "The Political Economy of Economic Growth in Africa, 1960–2000," Cambridge Books, Cambridge University Press, number 9780521127752, October.
    36. Gylfason, Thorvaldur & Herbertsson, Tryggvi Thor & Zoega, Gylfi, 1997. "A Mixed Blessing: Natural Resources and Economic Growth," CEPR Discussion Papers 1668, C.E.P.R. Discussion Papers.
    37. Augustin Kwasi Fosu, 2010. "Africa's Economic Future: Learning from the Past," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 11(01), pages 62-71, April.
    38. Mr. Emanuele Baldacci & Mr. Larry Q Cui & Mr. Benedict J. Clements & Mr. Sanjeev Gupta, 2004. "Social Spending, Human Capital, and Growth in Developing Countries: Implications for Achieving the MDGs," IMF Working Papers 2004/217, International Monetary Fund.
    39. Gylfason, Thorvaldur & Herbertsson, Tryggvi Thor & Zoega, Gylfi, 1999. "A Mixed Blessing," Macroeconomic Dynamics, Cambridge University Press, vol. 3(2), pages 204-225, June.
    40. Fosu, A. K., 2001. "Political instability and economic growth in developing economies: some specification empirics," Economics Letters, Elsevier, vol. 70(2), pages 289-294, February.
    41. Augustin Kwasi Fosu, 2008. "Implications of the External Debt-servicing Constraint for Public Health Expenditure in Sub-Saharan Africa," Oxford Development Studies, Taylor & Francis Journals, vol. 36(4), pages 363-377.
    42. Fosu, Augustin Kwasi, 2007. "Fiscal Allocation for Education in Sub-Saharan Africa: Implications of the External Debt Service Constraint," World Development, Elsevier, vol. 35(4), pages 702-713, April.
    43. World Bank, 2004. "World Development Indicators 2004," World Bank Publications - Books, The World Bank Group, number 13890.
    44. Azzam, Azzeddine M. & Yanagida, John F., 1987. "A Cautionary Note On Polynomial Distributed Lag Formulations Of Supply Response," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 12(1), pages 1-5, July.
    45. Rafael Di Tella & Alberto Ades, 1999. "Rents, Competition, and Corruption," American Economic Review, American Economic Association, vol. 89(4), pages 982-993, September.
    46. Prebisch, Raúl, 1950. "The economic development of Latin America and its principal problems," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 29973, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    47. Torvik, Ragnar, 2002. "Natural resources, rent seeking and welfare," Journal of Development Economics, Elsevier, vol. 67(2), pages 455-470, April.
    48. James Robinson, 2009. "Botswana as a Role Model for Country Success," WIDER Working Paper Series RP2009-40, World Institute for Development Economic Research (UNU-WIDER).
    49. Fosu, Augustin Kwasi, 1990. "Export composition and the impact of exports on economic growth of developing economies," Economics Letters, Elsevier, vol. 34(1), pages 67-71, September.
    50. Blattman, Christopher & Hwang, Jason & Williamson, Jeffrey G., 2007. "Winners and losers in the commodity lottery: The impact of terms of trade growth and volatility in the Periphery 1870-1939," Journal of Development Economics, Elsevier, vol. 82(1), pages 156-179, January.
    51. World Bank, 1998. "African Development Indicators 1997," World Bank Publications - Reports 9896, The World Bank Group.
    52. van der Ploeg, Frederick, 2006. "Challenges and Opportunities for Resource Rich Economies," CEPR Discussion Papers 5688, C.E.P.R. Discussion Papers.
    53. Mendoza, Enrique G., 1997. "Terms-of-trade uncertainty and economic growth," Journal of Development Economics, Elsevier, vol. 54(2), pages 323-356, December.
    54. 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.
    55. José Garcia Montalvo & Marta Reynal-Querol, 2004. "Ethnic polarization, potential conflict and civil wars," Economics Working Papers 770, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 2005.
    56. World Bank, 2010. "World Development Indicators 2010," World Bank Publications - Books, The World Bank Group, number 4373.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Trofimov, Ivan D., 2018. "Income terms of trade and economic convergence: Evidence from Latin America," MPRA Paper 87598, University Library of Munich, Germany.
    2. Badeeb, Ramez Abubakr & Lean, Hooi Hooi & Clark, Jeremy, 2017. "The evolution of the natural resource curse thesis: A critical literature survey," Resources Policy, Elsevier, vol. 51(C), pages 123-134.
    3. Silvana Sandonato & Henry Willebald, 2018. "Natural Capital, Domestic Product and Proximate Causes of Economic Growth: Uruguay in the Long Run, 1870–2014," Sustainability, MDPI, vol. 10(3), pages 1-26, March.
    4. Songfeng, Cai & Yaxiong, Zhang & Bo, Meng, 2014. "The Impact Analysis of TTIP on BRICs—based on dynamic GTAP model considering GVC," Conference papers 332528, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    5. Bent, Peter H., 2020. "Recovery from financial crises in peripheral economies, 1870–1913," Explorations in Economic History, Elsevier, vol. 78(C).
    6. Issaka Dialga, 2017. "Changing the Africa's impoverishing economic model: Towards a rewarding sustainable specialization model with a new factor of production," Working Papers halshs-01500431, HAL.
    7. Nayda Avalos & Veronica Gonzales Stuva & Adam Heal & Kaoru Lida & Naohito Okazoe, 2013. "Papua New Guinea and the Natural Resource Curse," ARTNeT Working Papers 128, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    8. Pérez, Claudia & Claveria, Oscar, 2020. "Natural resources and human development: Evidence from mineral-dependent African countries using exploratory graphical analysis," Resources Policy, Elsevier, vol. 65(C).
    9. Ivan Trofimov, 2021. "Income terms of trade and economic convergence: Evidence from Latin America," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 46(2), pages 41-67, June.
    10. Evans Stephen Osabuohien & Uchenna Rapuluchukwu Efobi, 2013. "Africa's Money in Africa," South African Journal of Economics, Economic Society of South Africa, vol. 81(2), pages 292-306, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Frederick van der Ploeg, 2011. "Natural Resources: Curse or Blessing?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 366-420, June.
    2. Kaznacheev, Peter, 2013. "Resource Rents and Economic Growth: Economic and institutional development in countries with a high share of income from the sale of natural resources. Analysis and recommendations based on internatio," EconStor Research Reports 121950, ZBW - Leibniz Information Centre for Economics.
    3. Augustin Kwasi Fosu, 2013. "Growth of African Economies: Productivity, Policy Syndromes and the Importance of Institutions," Journal of African Economies, Centre for the Study of African Economies, vol. 22(4), pages 523-551, August.
    4. Mohsen Mehrara, Mohsen & Alhosseini, Seyedmohammadsadegh & Bahramirad, Duman, 2008. "Resource curse and institutional quality in oil countries," MPRA Paper 16456, University Library of Munich, Germany, revised Mar 2009.
    5. Collier, Paul & Goderis, Benedikt, 2012. "Commodity prices and growth: An empirical investigation," European Economic Review, Elsevier, vol. 56(6), pages 1241-1260.
    6. Augustin Kwasi Fosu, 2013. "Growth of African Economies: Productivity, Policy Syndromes and the Importance of Institutions," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 22(4), pages 523-551, August.
    7. Halvor Mehlum & Karl Moene & Ragnar Torvik, 2006. "Institutions and the Resource Curse," Economic Journal, Royal Economic Society, vol. 116(508), pages 1-20, January.
    8. Augustin Kwasi Fosu, 2022. "Institutions and African Economic Development," Working Papers 202202, University of Pretoria, Department of Economics.
    9. Waqar Wadho & Sadia Hussain, 2023. "Ethnic diversity, concentration of political power and the curse of natural resources," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 40(1), pages 113-137, April.
    10. Halvor Mehlum & Karl Moene & Ragnar Torvik, 2006. "Cursed by Resources or Institutions?," The World Economy, Wiley Blackwell, vol. 29(8), pages 1117-1131, August.
    11. Rabah Arezki & Frederick van der Ploeg, 2007. "Can the Natural Resource Curse Be Turned into a Blessing? The Role of Trade Policies and Institutions," Economics Working Papers ECO2007/35, European University Institute.
    12. Barbier,Edward B., 2007. "Natural Resources and Economic Development," Cambridge Books, Cambridge University Press, number 9780521706513.
    13. Collier, Paul & Goderis, Benedikt, 2008. "Commodity Prices, Growth, and the Natural Resource Curse: Reconciling a Conundrum," MPRA Paper 17315, University Library of Munich, Germany.
    14. 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.
    15. Costantini, Valeria & Monni, Salvatore, 2008. "Environment, human development and economic growth," Ecological Economics, Elsevier, vol. 64(4), pages 867-880, February.
    16. Anne D. Boschini & Jan Pettersson & Jesper Roine, 2007. "Resource Curse or Not: A Question of Appropriability," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(3), pages 593-617, September.
    17. Bulte, Erwin H & Damania, Richard & Deacon, Robert, 2003. "Resource Abundance, Poverty and Development," University of California at Santa Barbara, Economics Working Paper Series qt66z854gv, Department of Economics, UC Santa Barbara.
    18. Diao, Xinshen & Breisinger, Clemens, 2010. "Foreign inflows and growth challenges for African countries," IFPRI discussion papers 967, International Food Policy Research Institute (IFPRI).
    19. Augustin Kwasi Fosu, 2010. "Africa's Economic Future: Learning from the Past," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 11(1), pages 62-71, April.

    More about this item

    Keywords

    African resource economies; terms of trade; growth;
    All these keywords.

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:csa:wpaper:2011-09. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Julia Coffey (email available below). General contact details of provider: https://edirc.repec.org/data/csaoxuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.