Econometric Analysis of Industrial Country Commodity Exports


WP/92/4-EA

Econometric Analysis of Industrial Country Commodity Exports
by Manmohan S. Kumar

This paper provides systematic evidence on the structure and evolution
of primary commodity exports by industrial countries and undertakes an
econometric analysis of the determinants of these exports. In recent years,
there has been increasing recognition of the fact that for several primary
commodities, industrial countries are also significant exporters. This
recognition has, however, been reflected mainly in a discussion of the role
played by industrial country subsidies in their agricultural sectors. While
an analysis of agricultural subsidies plays a key role in any discussion of
international agricultural policies, relatively much less work has been done
on the structure, evolution, and determinants of the aggregate of primary
commodity exports of industrial countries.

This paper tries to complement the emerging literature on industrial
countries' influence on commodity markets and focuses on two main areas.
First, it analyzes the structure of commodity exports by industrial
countries during the period 1965-87 and compares this structure with that
of commodity exports by developing countries. Second, it specifies and
estimates an econometric model of the demand for, and the supply of,
industrial country commodity exports. The model is estimated at a broad
commodity group level and disaggregated into five groups of industrial
countries: the United States, Canada, the European Economic Community,
other European countries, and Australia and New Zealand.

The results show that the industrial countries account for nearly
half of all world commodity exports, about the same share as they accounted
for in the late 1960s. As a proportion of their total merchandise exports,
however, commodity exports account for around 20 percent, compared with
nearly 50 percent for the developing countries. Intraregional commodity
exports have shown a secular decline since the mid-1960s. As a share of
world nonfuel commodity exports, industrial countries account for over
60 percent. While their share of food exports exceeds 70 percent,
industrial country exports of agricultural raw materials and metals and
minerals also account for nearly 65 percent of world exports.

The econometric results show that the price elasticities of supply
of major commodity exports of industrial countries appear to exceed
the comparable elasticities for the developing countries. This, it is
suggested, could reflect availability of resources for better inventory
management, as well as the possibility of increasing production relatively
more quickly. The price and income elasticities of demand for industrial
country commodity exports are also somewhat higher than those for the
developing countries. This could reflect, in part, some differences in
the composition of commodity supplies from the industrial and developing
countries. There are a number of important policy implications of the
results discussed in the paper.