Commodity Price Changes and Economic Growth in Developing Countries

Abstract

Using panel data 43 developing countries over the period 1980-2010, the paper examines the impact of the Commodity Terms of Trade (CTOT) Index on the real GDP per capita growth in developing countries. The study finds that for all countries in the sample, an increase in the CTOT index instantaneously leads to a statistically positive impact on the GDP per capita growth rate. Furthermore, the study finds evidence of resource curse under the Commodity Terms of Trade Index in developing countries. This suggests the need for improved management in the natural resources of developing countries. The energy sector proves to independently account for a resource curse. Better management is needed in the energy sector to counter the resource curse that has been reflected in the regression estimates especially in countries with a low score on the governance index.

Keywords: Commodity; Index; Trade; Developing; Governance

JEL Classification: C23; F10; O43