Do natural resource-based industrialization strategies convey important (unrecognized) price benefits for commodity-exporting developing countries?

Two objectives of international commodity policy have been to reduce instability in exporter's earnings and importer's prices through international (buffer stock) agreements and to encourage further processing of domestically produced commodities by developing countries. However, it appears that little attention has been given to potential interrelations between these objectives. Using the World Bank's commodity processing classification scheme this study shows that a major structural shift occurred from the mid-1960s to late 1980s in the composition of developing countries'exports toward most processed commodities, and this change was reflected to varying degrees in all major developed country import markets. However, the developing countries actually responsible for the further processing often were not major producers of the primary commodity. This finding suggests that internal constraints to commodity processing may often be more important than external barriers like escalating tariffs. This study also established that the shift resulted in developing countries receiving considerably more stable agricultural materials and ores and metals export prices--and to a lesser extent prices for foodstuffs--as well as more favorable long-term price changes. Both factors should further enhance efforts by developing countries to encourage local processing of domestically produced primary commodities.