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THOMAS K. MORRISON and MICHAEL WATTLEWORTH

The occurrence of a recession-like decline in commodity prices in 1984–86 during the upswing of the business cycle has raised concerns about the nature and causes of the decline—in particular, whether the causes may be related more to long-term structural factors than to short-term, reversible factors. For example, it has been recently stated that “the primary-products economy has come ‘uncoupled’ from the industrial economy” (Drucker (1986)) and that “economic growth is no longer accompanied by increased consumption of basic materials” (Larson, Ross, and Williams (1986)). The purpose of this paper is to provide an analysis of the causes of the recent decline in commodity prices in order to develop a better understanding of its underlying nature.

Bourn-Jong Choe

For the latest thinking about the international financial system, monetary policy, economic development, poverty reduction, and other critical issues, subscribe to Finance & Development (F&D). This lively quarterly magazine brings you in-depth analyses of these and other subjects by the IMF’s own staff as well as by prominent international experts. Articles are written for lay readers who want to enrich their understanding of the workings of the global economy and the policies and activities of the IMF.

Ms. Irena Asmundson and Ceyda Oner

Technology is generating a global convergence. A "big bang" of information—and education as well—is improving human lives. And with global interconnectivity growing by leaps and bounds, we are all witness to a rapid spread of information and ideas. But, as we have seen from the prolonged global financial crisis, our interconnectedness carries grave risks as well as benefits. This issue of F&D looks at different aspects of interconnectedness, globally and in Asia. • Brookings VP Kemal Devis presents the three fundamental trends in the global economy affecting the balance between east and west in "World Economy: Convergence, Interdependence, and Divergence." • In "Financial Regionalism," Akihiro Kawai and Domenico Lombardi tell us how regional arrangements are helping global financial stability. • In "Migration Meets Slow Growth," Migration Policy Institute president Demetrios Papademetriou examines how the global movement of workers will change as the economic crisis continues in advanced economies. • "Caught in the Web" explains new ways of looking at financial interconnections in a globalized world. • IMF Managing Director Christine Lagarde provides her take on the benefits of integration and the risks of fragmentation in "Straight Talk." Also in this issue, we take a closer look at interconnectedness across Asia as we explore how trade across the region is affected by China's falling trade surplus, how India and China might learn from each others' success, and what Myanmar's reintegration into the global economy means for its people. F&D's People in Economics series profiles Justin Yifu Lin, first developing country World Bank economist, and the Back to Basics series explains the origins and evolution of money.

Gordon Hughes

For the latest thinking about the international financial system, monetary policy, economic development, poverty reduction, and other critical issues, subscribe to Finance & Development (F&D). This lively quarterly magazine brings you in-depth analyses of these and other subjects by the IMF’s own staff as well as by prominent international experts. Articles are written for lay readers who want to enrich their understanding of the workings of the global economy and the policies and activities of the IMF.

CARMEN M. REINHART and PETER WICKHAM

Primary commodities still account for the bulk of exports in many developing countries. However, real commodity prices have been declining almost continuously since the early 1980s. The appropriate policy response to a terms of trade shock depends importantly on whether the shock is perceived to be temporary or permanent. Our results indicate that the recent weakness in commodity prices is mostly secular, stressing the need for commodity exporting countries to concentrate on export diversification and other structural policies. There is, however, scope for stabilization funds and the use of hedging strategies, since the evidence also suggests commodity prices have become more volatile.

Anne Romanis

While the immediate prospects for the Belgian economy appear rather favorable, there is a growing realization that integration into the European Economic Community (EEC) will pose the need for marked structural changes and adaptation over the next few years.1

Bension Varon

Concern over the availability and longevity of natural resources has escalated to the point where it finds expression in a question that is so absolute as to have parallels not in the social sciences but in philosophy. Having posed the question, the author examines the conceptual boundaries and practical dimensions of the problem of scarcity of raw materials.

Anne Romanis

THE PURPOSE of this paper is to inquire how far factors other than price competitiveness were responsible for variations in the U.S. share of world exports of manufactures over the period from 1953 to 1958.

JOHN T. CUDDINGTON and DANIEL JERRETT

To borrow a phrase once used about business cycles, it can be said that “the study of super cycles necessarily begins with the measurement of super cycles” (adapted from Baxter and King, 1999). Are metal prices currently in the early phase of such a “super cycle” ? Many market observers believe the answer is yes. Academics, on the other hand, are generally skeptical about the presence of long cycles. This paper searches for evidence of super cycles in metal prices by using band-pass filters to extract particular cyclical components from time series data. The evidence is consistent with the hypothesis that there have been three super cycles in the past 150 years or so, and that we are currently in the early phase of a fourth super cycle. Most analysts attribute the latter primarily to Chinese urbanization and industrialization.

KE-YOUNG CHU and THOMAS K MORRISON

An earlier paper by the authors analyzed demand-side factors underlying the short-run fluctuation of non-oil primary commodity prices (Chu and Morrison (1984)). The analysis focused on the impact of economic activity, domestic prices, and the exchange rates of industrial countries on the short-run fluctuation of non-oil commodity prices. The earlier paper showed that a large part of that fluctuation could be explained by the fluctuations of these demand-side variables. The analysis, however, did not adequately take into account the role of supply-side factors: both those relevant for short-run fluctuations of commodity prices (for example, supply shocks) and those relevant for medium-term fluctuations (for example, supply-price dynamics).