This paper examines the effect that windfalls from international commodity price booms have on net foreign assets in a panel of 145 countries during the period 1970-2007. The main finding is that windfalls from international commodity price booms lead to a significant increase in net foreign assets, but only in countries that are homogeneous. In polarized countries, net foreign assets significantly decreased. To explain this asymmetry, the paper shows that in polarized countries commodity windfalls lead to large increases in government spending, political corruption, and the risk of expropriation, with no overall effect on GDP per capita growth. The paper's findings are consistent with theoretical models of the current account that have a built-in voracity effect.
After skyrocketing over the past decade, commodity prices have remained stable or eased somewhat since mid-2011—and most projections suggest they are not likely to resume the upward trend observed in the last decade. This paper analyzes what this turn in the commodity price cycle may imply for output growth in Latin America and the Caribbean. The analysis suggests that growth in the years ahead for the average commodity exporter in the region could be significantly lower than during the commodity boom, even if commodity prices were to remain stable at their current still-high levels. Slower-than-expected growth in China represents a key downside risk. The results caution against trying to offset the current economic slowdown with demand-side stimulus and underscore the need for ambitious structural reforms to secure strong growth over the medium term.
Aqib Aslam, Samya Beidas-Strom, Mr. Rudolfs Bems, Oya Celasun, and Zsoka Koczan
Commodity prices have declined sharply over the past three years, and output growth has
slowed considerably among countries that are net exporters of commodities. A critical
question for policy makers in these economies is whether commodity windfalls influence
potential output. Our analysis suggests that both actual and potential output move together
with commodity terms of trade, but that actual output comoves twice as strongly as
potential output. The weak commodity price outlook is estimated to subtract 1 to 2¼
percentage points from actual output growth annually on average during 2015-17. The
forecast drag on potential output is about one-third of that for actual output.
This paper takes an in-depth look into recent trade patterns to assess the extent of such concerns. It is found that (i) there is no strong evidence of Dutch Disease; (ii) weak performance in some sectors, so far, does not appear to be linked to the commodity boom; and (iii) although further reliance on commodities has increased Indonesia’s vulnerability to export price volatility, the terms of trade have actually been rather stable as import and export prices co-move markedly, mitigating such vulnerability.