The Commodity-Finance Nexus: Twin Boom and Double Whammy

Abstract

International commodity prices and capital inflows to developing countries are increasingly synchronized, subjecting commodity-dependent economies to double boom-bust cycles. On the one hand, there are a number of common monetary factors, notably international interest rates and the exchange rate of the dollar that influence commodity prices and capital inflows in the same direction. On the other hand, commodity prices and capital inflows reinforce each other through their influence on economic activity in developing countries. Capital inflows move pro-cyclically with commodity prices, aggravating both positive and negative external trade shocks. This synchronization has greatly heightened the vulnerability of commodity-dependent developing economies to global boom-bust cycles.

Dependency revisited: commodities, commodity-related capital flows and growth models in emerging economies

“…First, we highlight the importance of commodity exports for growth in the majority of developing and emerging economies, proposing a stylized commodity pricedriven growth model and providing evidence of its global prevalence. Second, we analyze the joint effects of capital flows and commodity price swings on this growth model in commodity-dependent economies, a mechanism dubbed 'commodity-finance nexus' (following Akyüz 2022). We argue that this mechanism reinforces the pro-cyclical nature of commodity price-driven growth, financial volatility, and the vulnerability to global boom-bust cycles.…”

“…Building on our previous analysis (Mertens et al 2022), we aim to fill this gap in the literature and spell out the challenges and pitfalls of national growth models with an important share of commodity-based exports. To this end, we engage with an extensive literature in Development Economics dating back to the classics in the field (Lewis 1954;Prebisch 1959;Deaton 1999;Erten/Ocampo 2013;Akyüz 2022). This engagement, in combination with our empirical discussion on the 'commodity-finance nexus', leads us to underline the recent distinction between growth contributions, growth drivers, and growth models by Kohler/Stockhammer (2022).…”

The triple crisis of debt, demand and decarbonisation: a preliminary analysis of the impact of COVID-19 on commodity-dependent developing economies

“…Countries that rely on fossil fuels, as compared to minerals like lithium or iron ore for instance, may continue to experience downward demand trends taking into account how volatile capital flows and financialisation through the exchange rate that have affected their capital and institutional structure (Allami and Cibils, 2018). In other words, those countries that continue to integrate with global financial systems and architecture or which have reached a point of "intensive integration" would continue to experience this worsening scenario (Akyüz and Akyüz, 2020). The consistent demand uptick we saw during the 2000sand up to the major slump of 2014 is unlikely to return to the levels witnessed in that period (Castañeda et al, 2020;Jepson, 2020).This super-cycle period undoubtedly offered commodity reliant countries an opportunity to expand their fiscal revenue base by increasing increase tax and royalty hauls, investments in their national oil and mining companies and through new bargaining power of such states (Castañeda et al, 2020;Massi and Singh, 2018).…”

Paridade descoberta de juros e controles de capital sob o Sistema Monetário-Financeiro Internacional contemporâneo

“…Como decorrência da participação relativamente alta desses setores nos respectivos PIBscaracterística bastante frequente em economias periféricas que se especializam em vantagens comparativas naturais e são exportadoras líquidas de commoditieshá uma relação bastante perceptível entre os fluxos de capital externo e a variação dos termos de troca desses países. Posto de outra forma, períodos nos quais há uma melhora significativa nos termos de troca de países periféricos geralmente também são caracterizados por um forte ingresso líquido de capital externo nessas economias, ao passo que processos de deterioração dos termos de troca geralmente são acompanhados por uma desaceleração da entrada líquida de capital, podendo, inclusive, resultar em um sudden stop (Akyüz, 2020;Ocampo, 2010;Oliveira, 2011). 127 Posto isto, é importante frisar um ponto que diz respeito à fase de bonança externa: ainda que inicialmente o aumento da entrada líquida de capital externo corresponda principalmente aos setores beneficiados, direta e indiretamente, pelo aumento dos preços das commodities exportadas pelo país em questão, a valorização cambial resultante desse processo pode atrair novas modalidades de capital externo.…”

“…-100,000 período em questão (Ocampo, 2010;Akyüz, 2020). É possível inferir, portanto, que a relação existente entre o conceito de (baixa) preferência pela liquidez de divisa e a variação dos termos de troca de uma dada economia periférica implica medidas adicionais ao uso de controles de capital para reduzir os desvios da paridade descoberta de juros, tal como fora teorizado na Seção 3.3.…”