Influence of world commodity prices on the dynamics of income of exporting countries of natural resources under globalization
Abstract
A feature of modern globalization processes is their vulnerability to the volatility of short-term capital flows, which, combined with the growing volatility of commodity prices, have created serious difficulties for the economic policies of commodity-oriented countries. Therefore, the study of the impact of world commodity prices on the dynamics of economic growth of countries with commodity exports and the development of an appropriate methodology based on modern economic and mathematical tools is an urgent task. The purpose of the study is the impact of volatility and the level of world commodity prices on income dynamics (GDP and industrial production) using three groups of countries with different levels of economic development as an example. Functional dependencies were studied for three groups of countries: industrial countries exporting raw materials, countries – commodity exporters of low income and commodity countries of the former Soviet Union. The analysis is based on quarterly data for the period 1980–2018 using the Two-Step Least Squares (2SLS) method. We developed a methodology for the economic and statistical analysis of the functional dependencies of the commodity economy, which provides for the simultaneous accounting of the level of world commodity prices and their volatility, allows us to empirically evaluate the mechanisms of the macroeconomic influence of commodity prices on the dynamics of economic growth, primarily income (GDP and industrial production). It has been established that rising world prices for raw materials improves the dynamics of GDP and industrial production of countries exporting primary resources, while the consequences of high volatility of price indices are predominantly negative. If the impact on the economic growth of the exporting countries of raw materials of individual price indices coincides, then the corresponding estimates for volatility can differ significantly.
Keyword : commodity exporting countries, world commodity prices, volatility, economic growth, income, gross domestic product (GDP), industrial production
How to Cite
Nikonenko, U., Hanushchyn, S., Boikivska, G., Andriichuk, Y., & Kokhan, V. (2020). Influence of world commodity prices on the dynamics of income of exporting countries of natural resources under globalization. Business: Theory and Practice, 21(1), 440-451. https://doi.org/10.3846/btp.2020.12202
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Ito, K. (2012). The impact of oil price volatility on the macro-economy in Russia. Annals of Regional Science, 48, 695–702. https://doi.org/10.1007/s00168-010-0417-1
Jawaid, S. T., & Raza, S. A. (2013). Effects of terms of trade on growth performance of India. Economic Modelling, 33(C), 940–946. https://doi.org/10.1016/j.econmod.2013.04.043
Jawaid, S. T., & Waheed, A. (2011). Effects of terms of trade andits volatility on economic growth: a cross country empirical investigation. Transition Studies Review, 8(2), 217–229. https://doi.org/10.1007/s11300-011-0201-7
Kehoe, T. J., & Ruhl, K. J. (2008). Are shocks to the terms of trade shocks to productivity? Review of Economic Dynamics, 11, 804–819. https://doi.org/10.1016/j.red.2008.04.001
Kose, M. (2002). Explaining business cycles in small open economies: how much do world prices matter? Journal of International Economy, 56(2), 299–327. https://doi.org/10.1016/S0022-1996(01)00120-9
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McGregor, T. (2017). Commodity price shocks, growth and structural transformation in low-income countries. The Quarterly Review of Economics and Finance, 65, 285–303. https://doi.org/10.1016/j.qref.2017.01.006
Moreira, R. (2014). Commodities prices volatility, expected inflation and GDP levels: an application for a net-exporting economy. Procedia Economics and Finance, 14, 435–444. https://doi.org/10.1016/S2212-5671(14)00732-1
Nikonenko, U. (2014). Resource-dependent economy: conceptualization of the problem. Svit Finansiv, 1, 99–105.
Nikonenko, U. (2019). Macroeconomic determinants of the functioning of resource dependent economies in the context of globalization (monograph) (332 p.). Taras Soroka Publishing House.
Ploeg, van der F., & Poelhekke, S. (2007). Volatility, financial development and the natural resource curse. EUI Working Papers, 36 (40 p.).
Perez Forero, F., & Servan, S. (2016). The dynamic response of the current account to commodity prices shocks in mining and non-mining exporting economies. Working Paper. Serie de Documentos de Trabajo. № 2016-012 (25 p.).
Poppe, K. (2016). Resource abundance and its impact on Latin American economic growth. Journal of Behavioural Economics, Finance, Entrepreneurship, Accounting and Transport, 4(3), 54–70.
Raddatz, C. (2007). Are external shocks responsible for the instability of output in low-income countries? Journal of Development Economics, 84, 155–187. https://doi.org/10.1016/j.jdeveco.2006.11.001
Romero-Avila, D. (2009). Multiple breaks, terms of trade shocks and the unit-root hypothesis for African per Capita Real GDP. World Development, 37(6), 1051–1068. https://doi.org/10.1016/j.worlddev.2008.09.005
Rosser, A. (2006). The political economy of the resource curse: a literature survey. IDS Working Paper, 268 (34 p.).
Sachs, J. D., & Warner, A. M. (1995). Natural resource abundance and economic growth. NBER Working Paper, 5398 (47 p.). https://doi.org/10.3386/w5398
Sachs, J., & Warner, A. (2001). Natural resources and economic development: the curse of natural resources. European Economic Review, 45, 827–838. https://doi.org/10.1016/S0014-2921(01)00125-8
Sandonato, S., & Willebald, H. (2018). Natural capital, domestic product and proximate causes of economic growth: Uruguay in the long run. Sustainability, 10(715), 1870–2014. https://doi.org/10.3390/su10030715
Sylkin, O., Kryshtanovych, M., Zachepa, A., Bilous, S., & Krasko, A. (2019). Modeling the process of applying anti-crisis management in the system of ensuring financial security of the enterprise. Business: Theory and Practice, 20, 446–455. https://doi.org/10.3846/btp.2019.41
Schmitt-Grohe, S., & Uribe, M. (2018). How important are terms of trade shocks? International Economic Review, 59(1), 85–111. https://doi.org/10.1111/iere.12263
Shousha, S. (2016). Macroeconomic effects of commodity booms and busts: the role of financial frictions (57 p.). Columbia University.
Trofimov, I. (2018). Income terms of trade and economic convergence: Evidence from Latin America. MPRA Paper, 87598 (30 p.).
UNCTAD. (2012). Excessive commodity price volatility: Macro-economic effects on growth and policy options. Contribution from the UNCTAD secretariat to the G20 Commodity Markets Working Group (51 p.). https://unctad.org/en/Docs/gds_mdpb_G20_001_en.pdf
UNCTAD. (2016). The Trade and Development Report: Structural transformation for inclusive and sustained growth (252 p.). https://unctad.org/en/PublicationsLibrary/tdr2016_en.pdf
Vashkiv, O. (2017). Sectoral structural transformations in Ukraine in the context of post-industrial economic development. Globalni Ta Natsionalni Problemu Economiky, 16, 127–132. http://global-national.in.ua/archive/16-2017/27.pdf
Wong, H. T. (2004). Terms of trade and economic growth in Malaysia. Labuan Bulletin of International Business and Finance, 2(2), 105–122.
Araujo, R. (2016). Assessing the dynamics of terms of trade in a model of cumulative causation and structural change. Brazilian Journal of Political Economy, 36(1), 50–167. https://doi.org/10.1590/0101-31572016v36n01a09
Alcott, H., & Keniston, D. (2016). Dutch disease or agglomeration? The local economic effects of natural resource booms in Modern America. Working Papers, 41 (73 p.). https://doi.org/10.2139/ssrn.2691500
Arezki, R., & Nabli, M. K. (2012). Natural resources, volatility, and inclusive growth: perspectives from the Middle East and North Africa. IMF Working Paper 12/111 (25 p.). https://doi.org/10.5089/9781475503326.001
Auty, R. M. A (2001). Growth collapse with high rent point resources: Saudi Arabia. In R. M. Auty (eds.), Resource abundance and economic development (pp. 193–207). Lancaster University. https://doi.org/10.1093/0199275785.003.0012
Bacha, E., & Fishlow, A. (2011). Recent commodity price boom and Latin American growth: more than new bottles for an old wine? In J. A. Ocampo & J. Ros, The Oxford Handbook of Latin America Economics (pp. 394–400). Oxford Handbook. https://doi.org/10.1093/oxfordhb/9780199571048.013.0016
Bodart, V., Candelon, B., & Carpantier, J.-F. (2012). Real exchanges rates in commodity producing countries: A reappraisal. Journal of International Money and Finance, 31, 1482–1502. https://doi.org/10.1016/j.jimonfin.2012.02.012
Brunnschweiler, C. (2008). Cursing the blessings? Natural resource abundance, institutions, and economic growth. World Development, 36(3), 399–419. https://doi.org/10.1016/j.worlddev.2007.03.004
Butko, V. (2018). Not just the collapse of the lira: why is Turkey on the brink of financial crisis? Ukrainska Pravda (August 13). https://www.eurointegration.com.ua/experts/ 2018/08/13/7085547
Cakir, M. (2009, 14–15 November). Terms of trade and economic growth of emerging market economies. The International Conference on Administration and Business University of Bucharest (14 p.). University of Bucharest.
Сarrere, C., & Strauss-Kahn, V. (2012). Exports dynamics: raising developing countries exports survival though experince. Recherches the Development International, 21, 1–5.
Cavalcanti, T. de V., Mohaddes, K., & Raissi, M. (2012). Commodity price volatility and the sources of growth. IMF Working Paper, WP/12/12 (43 p.). https://doi.org/10.2139/ssrn.1846429
Danilenko, L. N. (2014) The rent-commodity economy of Russia and problems of its transformation (Doctor’s thesis). PGU.
Dovgan, D. (2015). Diversification of Ukrainian exports of ferrous metals and economic growth. Naukovyi visnyk Uzhhorodskogo Natsionalnogo Universytetu. Seriya: Mizhnarodni Economicni Vidnosyny ta Svitove Gospodarstvo, 3, 114–117.
Emara, N., Simutowe, A., & Jamison, T. (2015). Commodity price changes and economic growth in developing countries. MPRA Paper, 68678 (17 p.). https://doi.org/10.15341/jbe(2155-7950)/10.06.2015/005
Fernández, A., Schmitt-Grohе, S., & Uribe, M. (2017). World shocks, world prices, and business cycles: An empirical investigation. Journal of International Economics, 108, 2–14. https://doi.org/10.1016/j.jinteco.2017.01.001
Furman, V. (2018, May 18). Stimulating economic development: Turkey’s experience and Ukrainian realities. Dzerkalo tyzhnia. https://dt.ua/gazeta/issue/1151
Gruss, B. (2014). After the boom–commodity prices and economic growth in Latin America and the Caribbean. IMF Working Paper, WP/14/154 (42 p.). https://doi.org/10.5089/9781498363518.001
Gylfason, T., Herbertsson, T., & Zoega, G. (1999). A mixed blessing: natural resources and economic growth. Macroeconomic Dynamics, 3(02), 204–225. https://doi.org/10.1017/S1365100599011049
Hachula, M., & Hoffmann, S. (2015). The output effects of commodity price volatility: evidence from exporting countries. Discussion Papers, 29 (33 p.).
Hossain, M., Haseen, L., & Jabin, N. (2009). Dynamics and causality among exports, imports and income in Bangladesh. The Bangladesh Development Studies, 32(2), 101–113.
Houssa, R., Mohimont, J., & Otrok, C. (2015). The sources of business cycles in a low income country. IMF Working Paper, WP/15/40 (33 p.). https://doi.org/10.5089/9781498310147.001
Ischuk, S., & Tkach, S. (2020). Assessment of foreign trade prospects of Ukraine. Socio-economic Problems of the Modern Period, 15, 12–17.
Ito, K. (2012). The impact of oil price volatility on the macro-economy in Russia. Annals of Regional Science, 48, 695–702. https://doi.org/10.1007/s00168-010-0417-1
Jawaid, S. T., & Raza, S. A. (2013). Effects of terms of trade on growth performance of India. Economic Modelling, 33(C), 940–946. https://doi.org/10.1016/j.econmod.2013.04.043
Jawaid, S. T., & Waheed, A. (2011). Effects of terms of trade andits volatility on economic growth: a cross country empirical investigation. Transition Studies Review, 8(2), 217–229. https://doi.org/10.1007/s11300-011-0201-7
Kehoe, T. J., & Ruhl, K. J. (2008). Are shocks to the terms of trade shocks to productivity? Review of Economic Dynamics, 11, 804–819. https://doi.org/10.1016/j.red.2008.04.001
Kose, M. (2002). Explaining business cycles in small open economies: how much do world prices matter? Journal of International Economy, 56(2), 299–327. https://doi.org/10.1016/S0022-1996(01)00120-9
Lederman, D., & Maloney, W. F. (2007). Trade structure and growth. In D. Lederman & W. F. Maloney (Eds.), Natural re-sources, neither curse nor destiny (372 p.). Stanford University Press. https://doi.org/10.1596/978-0-8213-6545-8
McGregor, T. (2017). Commodity price shocks, growth and structural transformation in low-income countries. The Quarterly Review of Economics and Finance, 65, 285–303. https://doi.org/10.1016/j.qref.2017.01.006
Moreira, R. (2014). Commodities prices volatility, expected inflation and GDP levels: an application for a net-exporting economy. Procedia Economics and Finance, 14, 435–444. https://doi.org/10.1016/S2212-5671(14)00732-1
Nikonenko, U. (2014). Resource-dependent economy: conceptualization of the problem. Svit Finansiv, 1, 99–105.
Nikonenko, U. (2019). Macroeconomic determinants of the functioning of resource dependent economies in the context of globalization (monograph) (332 p.). Taras Soroka Publishing House.
Ploeg, van der F., & Poelhekke, S. (2007). Volatility, financial development and the natural resource curse. EUI Working Papers, 36 (40 p.).
Perez Forero, F., & Servan, S. (2016). The dynamic response of the current account to commodity prices shocks in mining and non-mining exporting economies. Working Paper. Serie de Documentos de Trabajo. № 2016-012 (25 p.).
Poppe, K. (2016). Resource abundance and its impact on Latin American economic growth. Journal of Behavioural Economics, Finance, Entrepreneurship, Accounting and Transport, 4(3), 54–70.
Raddatz, C. (2007). Are external shocks responsible for the instability of output in low-income countries? Journal of Development Economics, 84, 155–187. https://doi.org/10.1016/j.jdeveco.2006.11.001
Romero-Avila, D. (2009). Multiple breaks, terms of trade shocks and the unit-root hypothesis for African per Capita Real GDP. World Development, 37(6), 1051–1068. https://doi.org/10.1016/j.worlddev.2008.09.005
Rosser, A. (2006). The political economy of the resource curse: a literature survey. IDS Working Paper, 268 (34 p.).
Sachs, J. D., & Warner, A. M. (1995). Natural resource abundance and economic growth. NBER Working Paper, 5398 (47 p.). https://doi.org/10.3386/w5398
Sachs, J., & Warner, A. (2001). Natural resources and economic development: the curse of natural resources. European Economic Review, 45, 827–838. https://doi.org/10.1016/S0014-2921(01)00125-8
Sandonato, S., & Willebald, H. (2018). Natural capital, domestic product and proximate causes of economic growth: Uruguay in the long run. Sustainability, 10(715), 1870–2014. https://doi.org/10.3390/su10030715
Sylkin, O., Kryshtanovych, M., Zachepa, A., Bilous, S., & Krasko, A. (2019). Modeling the process of applying anti-crisis management in the system of ensuring financial security of the enterprise. Business: Theory and Practice, 20, 446–455. https://doi.org/10.3846/btp.2019.41
Schmitt-Grohe, S., & Uribe, M. (2018). How important are terms of trade shocks? International Economic Review, 59(1), 85–111. https://doi.org/10.1111/iere.12263
Shousha, S. (2016). Macroeconomic effects of commodity booms and busts: the role of financial frictions (57 p.). Columbia University.
Trofimov, I. (2018). Income terms of trade and economic convergence: Evidence from Latin America. MPRA Paper, 87598 (30 p.).
UNCTAD. (2012). Excessive commodity price volatility: Macro-economic effects on growth and policy options. Contribution from the UNCTAD secretariat to the G20 Commodity Markets Working Group (51 p.). https://unctad.org/en/Docs/gds_mdpb_G20_001_en.pdf
UNCTAD. (2016). The Trade and Development Report: Structural transformation for inclusive and sustained growth (252 p.). https://unctad.org/en/PublicationsLibrary/tdr2016_en.pdf
Vashkiv, O. (2017). Sectoral structural transformations in Ukraine in the context of post-industrial economic development. Globalni Ta Natsionalni Problemu Economiky, 16, 127–132. http://global-national.in.ua/archive/16-2017/27.pdf
Wong, H. T. (2004). Terms of trade and economic growth in Malaysia. Labuan Bulletin of International Business and Finance, 2(2), 105–122.