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Commodity terms of trade volatility and industry growth

Dongwon Lee

European Economic Review, 2023, vol. 156, issue C

Abstract: The rising volatility of commodity terms of trade (CTOT) is associated with a high cost of capital and a low credit supply for producers in commodity-dependent countries. In this paper, we examine how volatile CTOT influences various industries’ growth performance based on sector-level panel data for countries specializing in commodity exports. We find robust evidence that CTOT volatility causes a more significant growth loss in manufacturing sectors facing tighter credit constraints. The adverse growth effects operate through lower total factor productivity in industries heavily reliant on external finance for long-term investments and through lower capital accumulation in industries with high liquidity needs for short-term working capital. Our findings offer a complementary explanation for the “resource curse” through the credit constraint channel.

Keywords: Commodity terms of trade volatility; Cost of capital; Credit constraints; Industry growth (search for similar items in EconPapers)
JEL-codes: F43 O11 O13 O47 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:156:y:2023:i:c:s0014292123001083

DOI: 10.1016/j.euroecorev.2023.104479

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