Commodity Markets and the International Transmission of Fiscal Shocks
38 Pages Posted: 15 Feb 2006
Date Written: December 6, 1988
The "engine of growth" argument holds that an economic expansion in a large country increases the growth of its trading partners. Growth in developing countries is routinely linked to growth patterns in the industrial economies. This paper examines the role of commodity markets in transmitting disturbances internationally and finds that contrary to the implications of the "engine of growth" argument, a fiscal-induced expansion in a large commodity-importing country could either increase or decrease growth in the developing commodity-exporting country, and unambiguously reduces output in the second commodity-importing country.
JEL Classification: 3210, 4114
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