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Macroeconomic and Sectoral Effects of Terms-of-Trade Shocks; The Experience of the Oil-Exporting Developing Countries


  • International Monetary Fund


This paper investigates the impact of long-run terms-of-trade shocks. Analytically, we show that, if capital goods are largely importable or the labor supply is sufficiently elastic, then natural-resource booms increase aggregate investment and worsen the current account, but Dutch ‘Disease’ effects are weak. We then examine 18 oil-exporting developing countries during 1965-89. Favorable terms-of-trade shocks increase investment and (especially government) consumption, but reduce medium-term savings; hence, the current account deteriorates. Nontradable output increases, in response to real appreciations, but Dutch Disease effects are strikingly absent. Investment, consumption, and nontradable output respond more to a terms-of-trade decline than to an increase.

Suggested Citation

  • International Monetary Fund, 1999. "Macroeconomic and Sectoral Effects of Terms-of-Trade Shocks; The Experience of the Oil-Exporting Developing Countries," IMF Working Papers 99/134, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:99/134

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    References listed on IDEAS

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    8. Dornbusch, Rudiger, 1983. "Real Interest Rates, Home Goods, and Optimal External Borrowing," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 141-153, February.
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    Cited by:

    1. Juan José Echavarría & Andrés González, 2012. "Choques internacionales reales y financieros y su impacto sobre la economía colombiana," Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 30(69), pages 14-66, Diciembre.
    2. Paul Cashin & Christopher J. Kent, 2003. "The Response of the Current Account to Terms of Trade Shocks; Persistence Matters," IMF Working Papers 03/143, International Monetary Fund.
    3. Abdur R. Chowdhury, 2003. "Do asymmetric terms of trade shocks affect private savings in a transition economy?," Macroeconomics 0303006, EconWPA.
    4. Abdur R Chowdhury, 2004. "Private Savings in Transition Economies: Are there Terms of Trade Shocks?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 46(4), pages 487-514, December.
    5. Ali Alichi & Rabah Arezki, 2012. "An alternative explanation for the resource curse: the income effect channel," Applied Economics, Taylor & Francis Journals, vol. 44(22), pages 2881-2894, August.
    6. Chowdhury, Abdur, 2015. "Terms of trade shocks and private savings in the developing countries," Journal of Comparative Economics, Elsevier, vol. 43(4), pages 1122-1134.
    7. repec:eee:jrpoli:v:52:y:2017:i:c:p:90-99 is not listed on IDEAS
    8. Arezki, Rabah & Ismail, Kareem, 2013. "Boom–bust cycle, asymmetrical fiscal response and the Dutch disease," Journal of Development Economics, Elsevier, vol. 101(C), pages 256-267.
    9. Chowdhury, Abdur R., 2003. "Do asymmetric terms of trade shocks affect private savings in a transition economy?," BOFIT Discussion Papers 3/2003, Bank of Finland, Institute for Economies in Transition.
    10. Roberto Álvarez E. & J. Rodrigo Fuentes S., 2006. "El “Síndrome Holandés”: Teoría y Revisión de la Experiencia Internacional," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 9(3), pages 97-108, December.
    11. Araujo, Juliana D. & Li, Bin Grace & Poplawski-Ribeiro, Marcos & Zanna, Luis-Felipe, 2016. "Current account norms in natural resource rich and capital scarce economies," Journal of Development Economics, Elsevier, vol. 120(C), pages 144-156.
    12. Elbadawi, Ibrahim A. & Kaltani, Linda & Schmidt-Hebbel, Klaus, 2007. "Post-conflict aid, real exchange rate adjustment, and catch-up growth," Policy Research Working Paper Series 4187, The World Bank.

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