The long run effects of commodity price volatility on growth and inflation: A cross-country panel estimation

Adil Mohommad () and Mehdi Raissi ()
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Adil Mohommad: IMF
Mehdi Raissi: IMF

Economics Bulletin, 2025, vol. 45, issue 2, 910 - 918

Abstract: We study the impact of commodity terms of trade (CToT) volatility on long-term economic growth and its drivers as well as on inflation, in a sample of 118 countries over 1970-2019, including 69 commodity exporters. Our econometric approaches account for bi-directional feedback effects, cross-country heterogeneity, and cross-sectional dependences. We find that CToT volatility exerts a negative impact on long-term economic growth, mainly through lower capital accumulation. This offsets the positive impact on growth from commodity price booms (especially in resource-rich economies). Furthermore, we observe that higher CToT volatility leads to greater volatility in inflation rather than structurally higher inflation.

Keywords: Terms of trade; volatility; commodity prices; growth; inflation (search for similar items in EconPapers)
JEL-codes: E3 F1 (search for similar items in EconPapers)
Date: 2025-06-30
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