Commodity Price Uncertainty in Developing Countries
Uncertainty about commodity export prices is important to developing countries -- both governments and producers -- that export primary commodities. Commodity export price uncertainty is typically measured as the standard deviation in the terms of...
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| Language: | English en_US |
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World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2000/08/693238/commodity-price-uncertainty-developing-countries http://hdl.handle.net/10986/19807 |
| Summary: | Uncertainty about commodity export
prices is important to developing countries -- both
governments and producers -- that export primary
commodities. Commodity export price uncertainty is typically
measured as the standard deviation in the terms of trade.
There are three problems with this approach: 1) Terms of
trade indices are unsuitable as proxies for commodity price
movements per se. 2) The shortness of terms of trade time
series makes them inappropriate as a base for constructing
time-varying uncertainty measures. 3) Simple standard
deviation measures ignore the distinction between
predictable and unpredictable elements in the price process,
so they risk overstating uncertainty. 4) The author examines
commodity price uncertainty in developing countries using
new data for quarterly aggregate commodity price indices for
113 developing countries for the period 1957-97. Each index
is a geometrically weighted index of 57 commodity prices. He
constructs six different measures of uncertainty. The
uncertainty measures confirm the importance of
distinguishing between predictable and unpredictable
components in the price process. But there is a positive,
highly significant relationship between commodity export
concentration and commodity price uncertainty for all six
measures. No obvious link is found between a country's
regional affiliation and its exposure to uncertainty.
Sub-Saharan African countries, for example, are no more
prone to commodity price uncertainty than countries in other
commodity-producing regions, although to the extent that
they depend more on commodities, they will be affected more
than countries with more diversified export baskets.
Similarly, there is no apparent relationship between a
country's experiences of uncertainty and the type of
commodities that dominate its exports-except that oil
producers face greater uncertainty (because of discrete,
well-publicized oil shocks). A measure of uncertainty based
on generalized autoregressive conditional heteroskedasticity
(GARCH) indicates considerable time variation in
uncertainty. Uncertainty is sometimes characterized by
discrete spikes, although uncertainty in countries exhibits
a secular increase over time. Most countries experience
uncertainty, which tends to persist. It is unclear what lies
behind the time variation in uncertainty. |
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