Four Decades of Terms-of-Trade Booms: Saving-Investment Patterns and a New Metric of Income Windfall

May 9, 2013

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Gustavo Adler, and Nicolas E Magud. Four Decades of Terms-of-Trade Booms: Saving-Investment Patterns and a New Metric of Income Windfall, (USA: International Monetary Fund, 2013) accessed September 19, 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

We study the history of terms-of-trade booms (during 1970–2012), with a focus on Latin America, through the prisms of a simple metric that quantifies the associated income windfall. We also document saving patterns during these episodes and propose a measure of how much of the income windfall was saved. We find that Latin America‘s terms-of-trade shocks of the last decade have not differed much in magnitude from those observed during the 1970s, but that the associated windfall have been substantially larger. While aggregate saving increased more than in past episodes, the share of the windfall saved (the marginal saving rate) seems to be lower, suggesting that greater aggregate saving reflects mainly the sheer size of the windfall rather than a greater 'effort' to save it. Finally, we find evidence that, while savings during the boom help to increase post-boom income, the composition of such savings matters. Specifically, in past episodes, savings allocated to foreign asset accumulation appear to have contributed more to post-boom income than those devoted to domestic investment.

Subject: Balance of payments, Current account balance, Domestic savings, External position, Foreign assets, International trade, National accounts, Personal income, Terms of trade

Keywords: Aggregate saving, Asia and Pacific, Boom episode, Current account, Current account balance, Domestic savings, Europe, Foreign assets, Income windfall, Personal income, Real income, Saving rate, Terms of trade, Terms-of-trade boom, Terms-of-trade shock, Windfall, WP

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/103
Stock No:

WPIEA2013103
ISBN:

9781484356241
ISSN:

1018-5941

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