Macroeconomic Consequences of International Commodity Price Shocks

Chile and Mexico, two Latin American countries that shared similar economic conditions in early’ 80s are studied in order to shed light about the role commodities play. In a general equilibrium growth accounting framework over the period 1980-2000 we show that Adjusted Total Factor Productivity net of oil and copper, has correspondingly decreased and increased less than TFP, suggesting that commodities are a relevant growth factor. Previous works have shown that Chile recovered more quickly than Mexico did. However, when commodity price changes are taken into account, we show that copper and oil have played a major role in the depressions and recoveries for both economies. We propose a neoclassical growth model where we distinguish between the role of commodities and the rest of the economy. The results complement the findings in Bergoeing et al.(2002).