Absorptive Capacity and the Impact of Commodity Terms of Trade Shocks in Resource Export-Dependent Economies

Akiko Hagiwara (), Mai Lin Villlaruel () and Christopher Edmonds
Additional contact information
Mai Lin Villlaruel: Asian Development Bank

No 487, ADB Economics Working Paper Series from Asian Development Bank

Abstract: This paper investigates the role of “absorptive capacity” to manage unexpected shocks to their real economy, with a focus on small, open, natural resource-dependent economies. A quarterly panel data series for 45 countries is constructed, including 23 developing Asian countries for empirical investigation. For the entire sample, the analysis finds that absorptive capacity, choice of exchange rate regime, presence of wealth funds, level of foreign reserves, or degree of resource dependency alone, does not matter when real shocks are introduced to output. However, levels of absorptive capacity or ability to use resource windfalls effectively, and foreign reserves begin to matter when the sample is restricted to resource-dependent countries. Case studies from Papua New Guinea and Timor-Leste support this claim highlighting the challenges they face with a sudden influx of natural resource revenues when capacity to effectively use fiscal revenues is limited.

Keywords: absorptive capacity; economic growth; natural resources; real exchange rate; terms of trade (search for similar items in EconPapers)
JEL-codes: F14 F43 H11 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2016-06-21
New Economics Papers: this item is included in nep-int and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.adb.org/publications/absorptive-capaci ... y-terms-trade-shocks Full text (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:adbewp:0487

Access Statistics for this paper

More papers in ADB Economics Working Paper Series from Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines. Contact information at EDIRC.
Bibliographic data for series maintained by Orlee Velarde ().