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

October 1, 1999

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Macroeconomic and Sectoral Effects of Terms-of-Trade Shocks: The Experience of the Oil-Exporting Developing Countries, (USA: International Monetary Fund, 1999) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Consumption, Dutch disease, Economic theory, Environment, International trade, National accounts, Natural resources, Oil prices, Prices, Terms of trade

Keywords: Capital goods, Consumption, Dutch Disease, Exchange rate, Export-price effect, Natural resources, Natural-resource boom, Natural-resource sector, Oil prices, Terms of trade, Terms-of-trade shock, Trade balance, WP

Publication Details

Pages:

56
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1999/134
Stock No:

WPIEA1341999
ISBN:

9781451855586
ISSN:

1018-5941

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