Macroeconomic and Sectoral Effects of Terms-of-Trade Shocks: The Experience of the Oil-Exporting Developing Countries

International Monetary Fund

No 1999/134, IMF Working Papers from International Monetary Fund

Abstract: This paper investigates the impact of long-run terms-of-trade shocks. Analytically, we show that, if capital goods are largely importable or the labor supply is sufficiently elastic, then natural-resource booms increase aggregate investment and worsen the current account, but Dutch ‘Disease’ effects are weak. We then examine 18 oil-exporting developing countries during 1965-89. Favorable terms-of-trade shocks increase investment and (especially government) consumption, but reduce medium-term savings; hence, the current account deteriorates. Nontradable output increases, in response to real appreciations, but Dutch Disease effects are strikingly absent. Investment, consumption, and nontradable output respond more to a terms-of-trade decline than to an increase.

Keywords: WP; exchange rate; capital goods; Terms of trade; natural resources; Dutch Disease; terms-of-trade shock; natural-resource boom; natural-resource sector; trade balance; export-price effect; Consumption; Oil prices (search for similar items in EconPapers)
Pages: 56
Date: 1999-10-01
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Citations: View citations in EconPapers (19)

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