THE pressing need for highly indebted countries to accelerate the growth of their exports has drawn increased attention to the export performance of developing countries in recent years. This paper focuses on that performance with regard to primary commodities. Data on the flow of primary commodity (henceforth, for simplicity, “commodity”) exports from selected regional groups of non-oil developing countries 1 are presented and analyzed. Such data can be useful both for projecting exports and for formulating exchange rate and trade policies.
Foreign trade data point to substantial changes in the commodity structure of developing country exports over the past two decades. First, the data show a decline from 1965 through 1980 in the share of goods from all developing countries in the commodity imports of industrial countries. Second, the data show that over the same period the Asian countries were the most successful in maintaining their market shares. Both demand-side and supply-side reasons for these changes are suggested. On the demand side, the paper discusses the role played by commodity composition, proximity to markets, and industrial country policies. On the supply side, the paper examines factors such as relative prices, domestic resource use, population growth, and the local endowment of natural resources, as well as the influence of domestic policies.
The export data are then analyzed econometrically to distinguish the relative effects of the world economic environment (demand) and of the domestic environment (supply) on the volume of exports. The countries studied are categorized into five geographical regions to highlight the interregional differences in demand and supply elasticities. The estimated price and income elasticities thus obtained are compared with estimated elasticities for individual commodities and for groups of commodities obtained from other studies.
It was decided to base the study on groups of commodities and on regions, rather than on individual commodities and countries, to permit an analysis of broad economic trends while at the same time allowing enough aggregation so that differences in these trends among commodity groups and regions could be distinguished. With developing countries aggregated into regions, the supply equations for each commodity group can be estimated on the assumption that the commodity group is differentiated by its source of supply and that importing countries distinguish the imported commodity originating with a regional group from the commodity produced domestically. The supply of commodity exports from a particular region is also assumed to increase as the price of the exported commodity rises relative to domestic prices in the region.
The possibility of using the imperfect substitutes model arises from the aggregation of countries into regions. Whereas an individual country may be able to change its supply of exports of certain primary products without any price change taking place, groups of developing countries can change supply conditions only by evoking a change in the price. Thus for groups of countries the imperfect substitutes model is the appropriate one to use. The elasticity estimates resulting from this model provide important information on the extent to which specific types of exports of particular groups of countries respond to world growth, world prices, and domestic regional prices.
The plan of the paper is as follows. Section I looks at the trends of commodity exports for developing countries as a whole and for the five selected regions; such trends reflect structural developments that have taken place over the past two decades. Section II presents a model that incorporates both the demand and supply determinants of commodity exports. Section III discusses the results derived from the model. Section IV presents a survey of empirical results from other studies and compares them with the results from this study. Section V summarizes the conclusions.