Innovation, Real Primary Commodity Prices and Business Cycles

14 Pages Posted: 26 Nov 2010 Last revised: 3 Dec 2010

See all articles by Harry Bloch

Harry Bloch

Curtin University of Technology - Curtin Business School - School of Economics and Finance

David Sapsford

University of Liverpool Management School (ULMS) - Economics Division

Date Written: September 15, 2010

Abstract

We follow Schumpeter’s approach to analyzing price movements as set out in Business Cycles. While Schumpeter emphasizes movements in prices of finished manufactured goods, our focus is on the real prices of primary commodities, which are measured by the price of particular commodities or an index of commodity prices relative to an index of prices of manufactured goods. Our analysis leads to an expectation of a long-run downward trend for the real (or relative) prices of primary commodities with a distinctive cyclical pattern, rising in the upswing of the Kondratieff cycle and declining by a larger amount in the downswing. This characterization of price movements applies in general, but is subject to disturbance by history. We demonstrate the role of primary commodities in the process of economic development using a long historical series of prices of twenty-five primary commodities and a corresponding series for an index of prices of manufactured goods. We provide examples of the role of innovations in both technology and institutions in driving trends over particular periods for particular commodities.

Keywords: Primary Commodity Prices, Schumpeter, Innovation, Economic Growth

JEL Classification: D24, Q33, Q41

Suggested Citation

Bloch, Harry and Sapsford, David, Innovation, Real Primary Commodity Prices and Business Cycles (September 15, 2010). CRAE Research Paper No. 201011. Available at SSRN: https://ssrn.com/abstract=1715234 or http://dx.doi.org/10.2139/ssrn.1715234

Harry Bloch (Contact Author)

Curtin University of Technology - Curtin Business School - School of Economics and Finance ( email )

Curtin University
GPO Box U 1987
Perth, 6845
Australia
+61 8 9266 2035 (Phone)
+61 8 9266 3026 (Fax)

David Sapsford

University of Liverpool Management School (ULMS) - Economics Division ( email )

Eleanor Rathbone Building
Bedford Street North
Liverpool L69 7ZA
United Kingdom
+44 (0)151 795 3701 (Phone)
+44 (0)151 795 3001 (Fax)

HOME PAGE: http://www.liv.ac.uk/management/

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