Financial Market Crises and Natural Resource Production

International Review of Finance, Vol. 10, No. 1, pp. 93-124

41 Pages Posted: 8 Nov 2009 Last revised: 24 May 2010

See all articles by James R. Brown

James R. Brown

Iowa State University - Department of Finance

Lauren C. Lax

affiliation not provided to SSRN

Bruce C. Petersen

Washington University in St. Louis - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 11, 2009

Abstract

During a financial crisis, the loss of access to world capital markets may force heavily indebted countries to accelerate their production of exhaustible resources. Few studies consider the impact that financial crises have on real behavior, and no existing studies appear to consider the impact a crisis might have on resource production. We find that four major state-owned enterprises in Brazil, Chile and Mexico substantially expanded their production and world market share of copper, iron ore and oil during the 1980s international financial crisis. There was also a very large expansion, followed by a sharp contraction, of production of tin in Brazil and silver in Mexico. In contrast, Indonesia – a major resource producer who did not succumb to the 1980s financial crisis – did not accelerate production during the 1980s crisis, and resource production in the U.S. sharply contracted during this period. Our study provides new insights into why the prices of natural resources are so volatile and highlights a previously unexplored reason for financial contagion: one country’s efforts to service its debt can drive down resource prices and revenues to other indebted resource producers.

Keywords: Financial market crises, Debt crises, Government budget constraint, Exhaustible resources, Resource depletion

JEL Classification: F34, Q32

Suggested Citation

Brown, James R. and Lax, Lauren C. and Petersen, Bruce Clayton, Financial Market Crises and Natural Resource Production (August 11, 2009). International Review of Finance, Vol. 10, No. 1, pp. 93-124. Available at SSRN: https://ssrn.com/abstract=1501343

James R. Brown

Iowa State University - Department of Finance ( email )

Ivy College of Business
Ames, IA 50011
United States
5152944668 (Phone)

Lauren C. Lax

affiliation not provided to SSRN ( email )

Bruce Clayton Petersen (Contact Author)

Washington University in St. Louis - Department of Economics ( email )

One Brookings Drive
St. Louis, MO 63130
United States
314-935-5643 (Phone)

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