Passing the Buck: Impacts of Commodity Price Shocks on Local Outcomes

Arthur Grimes and Sean Hyland ()
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Sean Hyland: Motu Economic and Public Policy Research

No 13_10, Working Papers from Motu Economic and Public Policy Research

Abstract: The extent to which exogenous international agricultural price fluctuations are internalised by rural communities is of major interest for policy-makers concerned with regional economic performance. So too is the link between rural sector performance and urban outcomes, especially in agriculturally-based economies. Through vector autoregressive (VAR) modelling we estimate the causal effect of exogenous commodity price innovations on both rural and urban community outcomes. Our analysis demonstrates that restricting the focus to national effects may lead to incorrect inference. We therefore extend the analysis to a VAR using panel data covering all New Zealand districts over 1991–2011. House prices and housing investment are used as quarterly indicators of regional economic and population outcomes. By exploiting the variation in production bundles across communities we find that an increase in commodity prices leads to a permanent increase in housing investment and house prices across the country. However, we find that rural communities are relatively insulated from commodity price shocks, whereas urban areas are most affected by commodity price shocks. We discuss the reasons why this paradoxical result may arise.

Keywords: Agricultural commodity prices; rural-urban interactions; house prices; housing investment (search for similar items in EconPapers)
JEL-codes: E32 R11 R12 R31 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2013-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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