The asymmetric effect of commodity price returns on economic growth: evidence from net-commodity-exporting countries during inflationary times

Purpose: This paper examines how real commodity price returns affect GDP growth, focusing on the role of inflation as a transitional mechanism in this relationship. Design/methodology/approach: We use a panel smooth transition regression (PSTR) model to analyse the non-linear effect of commodity price returns on GDP growth, using inflation as the transition variable. Our analysis is conducted across four key commodity indexes: energy, food and beverages, precious metals and agricultural raw materials. Findings: Our results reveal a significant non-linear relationship between real commodity price returns and GDP growth, which varies across commodity types. We find that during periods of low inflation, commodity price returns – especially on food, energy and precious metals – have a strong and positive effect on GDP growth. Conversely, under conditions of high inflation, returns on food and beverages and agricultural raw materials have a negative influence on economic growth. These findings highlight the role of inflation as a crucial transmission channel. Importantly, by including food, metals and agricultural raw materials – commodity categories that have been less examined in prior studies – our analysis offers a more comprehensive comparative perspective on their unique economic impacts. Research limitations/implications: In times of rising and persistent inflation, investors should consider diversifying their portfolios beyond traditional stock and bond markets to mitigate the risks associated with inflation. Originality/value: This paper contributes to the growing body of literature on macro-financial linkages by highlighting the non-linear, inflation-mediated relationship between commodity prices and GDP growth. The use of the PSTR model offers a novel approach to capturing regime-dependent effects. The findings are particularly valuable for policymakers and investors aiming to understand and manage the macroeconomic risks associated with commodity price volatility under different inflationary conditions.