Macroeconomic and Sectoral Effects of Terms-of-Trade Shocks: The Experience of the Oil-Exporting Developing Countries

56 Pages Posted: 13 Feb 2006

See all articles by Nicola Spatafora

Nicola Spatafora

International Monetary Fund (IMF)

Andrew M. Warner

Harvard University - Center for International Development (CID)

Date Written: October 1999

Abstract

This paper investigates the impact of long-run terms-of-trade shocks. Analytically, we show that, if capital goods are largely importable or the labor supply is sufficiently elastic, then natural-resource booms increase aggregate investment and worsen the current account, but Dutch `Disease` effects are weak. We then examine 18 oil-exporting developing countries during 1965-89. Favorable terms-of-trade shocks increase investment and (especially government) consumption, but reduce medium-term savings; hence, the current account deteriorates. Nontradable output increases, in response to real appreciations, but Dutch Disease effects are strikingly absent. Investment, consumption, and nontradable output respond more to a terms-of-trade decline than to an increase.

Keywords: Terms of trade, natural resources, Dutch Disease

JEL Classification: F41, F43

Suggested Citation

Spatafora, Nikola and Warner, Andrew M., Macroeconomic and Sectoral Effects of Terms-of-Trade Shocks: The Experience of the Oil-Exporting Developing Countries (October 1999). IMF Working Paper, Vol. , pp. 1-56, 1999. Available at SSRN: https://ssrn.com/abstract=880661

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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