Macroeconomic Effects of Terms-of-Trade Shocks: The Case of Oil-Exporting Countries

42 Pages Posted: 20 Apr 2016

See all articles by Nicola Spatafora

Nicola Spatafora

International Monetary Fund (IMF)

Andrew M. Warner

Harvard University - Center for International Development (CID)

Date Written: November 30, 1999

Abstract

The authors investigate the impact on economic growth and development of long-run movements in the external terms of trade, with special reference to the experience of 18 oil-exporting countries between 1973 and 1989. They argue that this sample approximates a controlled experiment for examining the impact of unanticipated - but permanent - shocks to the terms of trade. They analyze the sample econometrically using panel data techniques. They find that permanent terms-of-trade shocks have a strongly significant positive effect on investment, which they justify theoretically on the grounds that countries in the sample import much of their capital equipment. The shocks also have a significant positive effect on consumption. Government consumption responds almost twice as strongly as private consumption. The shocks have no effect on savings and adversely affect the trade and current account balances. There is a significant positive effect on the output of all main categories of nontradables. But Dutch disease effects are strikingly absent. Agriculture and manufacturing do not contract in reaction to an oil price increase. Dutch disease effects may be absent in part because of policy-induced output restraints in the oil sector, or because of the enclave nature of the oil sector, which does not participate in domestic factor markets.

Suggested Citation

Spatafora, Nikola and Warner, Andrew M., Macroeconomic Effects of Terms-of-Trade Shocks: The Case of Oil-Exporting Countries (November 30, 1999). World Bank Policy Research Working Paper No. 1410. Available at SSRN: https://ssrn.com/abstract=636169

Nikola Spatafora (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Andrew M. Warner

Harvard University - Center for International Development (CID) ( email )

One Eliot Street Building
79 JFK Street 79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-3628 (Phone)
617-495-0712 (Fax)

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