## Commodity Price Volatility and the Sources of Growth

_IMF Working Papers, January 1, 2012_

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## Bibliographic details
- Published: January 1, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781463931179.001

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### Research question and methodology
- Research focus:
  - Impact of the level and volatility of the commodity terms of trade on economic growth and on three growth channels: total factor productivity, physical capital accumulation, and human capital acquisition.
- Estimation approaches:
  - Standard system GMM approach.
  - Cross-sectionally augmented pooled mean group (CPMG) methodology of Pesaran et al. (1999), which accounts for cross-country heterogeneity and cross-sectional dependence.
- Data:
  - Annual data for 1970-2007.
  - Five-year non-overlapping observations.

### Key empirical findings
- Effects on aggregate growth:
  - Commodity terms of trade growth enhances real output per capita.
  - Commodity terms of trade volatility exerts a negative impact on economic growth.
- Magnitude and channels:
  - The negative growth impact of volatility operates mainly through lower accumulation of physical capital.
  - The negative growth effects of commodity terms of trade volatility offset the positive impact of commodity booms.
- Additional finding:
  - Export diversification of primary commodity abundant countries contributes to faster growth.
- Interpretation:
  - Volatility, rather than abundance per se, drives the "resource curse" paradox.

### Mechanisms and channels analyzed
- Total factor productivity (TFP).
- Physical capital accumulation (identified as the main channel through which volatility reduces growth).
- Human capital acquisition.
- The study links commodity terms of trade level and volatility to these three channels using the specified econometric approaches.

### Policy implications and recommendations (implied by findings)
- Policies aimed at reducing commodity price volatility or mitigating its effects can support physical capital accumulation and thereby growth.
- Export diversification in primary commodity abundant countries is associated with faster growth and can help offset volatility-related harms.
- Focus on volatility management may be more important than concerns about resource abundance per se in addressing the "resource curse."

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/commodity-price-volatility-and-the-sources-of-growth-25621_