Commodity Prices and Growth

Abstract

In this article, we propose an endogenous growth model of commodity-rich economies in which: (i) long-run (steady-state) growth is endogenous and yet independent of commodity prices; (ii) commodity prices affect short-run growth through transitional dynamics; and (iii) the status of net commodity importer/exporter is endogenous. We argue that these predictions are consistent with historical evidence from the 19th to the 21st century. Harding and Venables, 2016). Our model identifies in the substitutability between labour and commodity a key conditioning factor capable of rationalising this pattern. Importantly, the overall substitutability between labour and commodity is subsumed in three sufficient statistics such as:

Inflation‐growth nexus in developing economies: New empirical evidence from a disaggregated approach

“…Our results lend support to the theoretical considerations of Huo (1997) and Ferraro and Peretto (2017). The results for the control variables are consistent with the standard literature.…”

“…More recently, in an endogenous growth model of commodity‐rich economies (i.e., Australia, Canada, New Zealand, and the United States), Ferraro and Peretto (2017) examined the relationship between commodity prices and growth. They argued that long‐run growth is endogenous and independent of commodity prices whereas short‐run growth is affected through transitional dynamics in aggregate total factor productivity.…”

TFP Growth and Commodity Prices in Emerging Economies

“…A second channel has previously been highlighted by Ferraro and Peretto (2015). They study an endogenous growth model in a small, open economy, where the commodity importer/exporter status is endogenous and commodity prices affect aggregate TFP in the short run.…”

“…By contrast, TFP growth shocks affect positively the output gap for around five years. 12 That said, a matter of interest within our Panel Bayesian VAR model is to establish the contribution of each structural shock to the historical dynamics of the TFP growth 13 . Hence,…”

“…In this sense, determinants and patterns of development of 12 Though not reported, but available upon request, the (median) variance decomposition for other countries are qualitatively similar to those found for the whole sample. 13 Further details on how to generate historical decomposition of shocks are summarized in the Computational Appendix.…”