drift in the relative price of primary commodities a case where we care about unit roots the evidence for the prebisch singer hypothesis of a downward drift over time in the relative price of primary commodities is considered the apparent strength of that evidence appears to depend to a substantial degree on whether the time series of relative prices is assumed to be trend stationary or integrated of order one moreover the usual econometric tests are relatively uninformative on this question these conclusions emerge whether or not a structural break in the series is permitted

re testing prebisch singer hypothesis new evidence using fourier quantile unit root test the prebisch singer hypothesis in economics asserts that over time the relative price of primary goods relative to manufactured goods should experience a downward trend to test the hypothesis we

the money supply and nominal agricultural prices in the early 1970s food and agricultural prices in the united states rose substantially faster than other prices now early in the 1980s farm prices are depressed relative to other prices in the economy numerous explanations of the behavior of nominal agricultural prices in the past decade have been offered these explanations may be broadly divided into two categories the first is the structuralist explanation it argues that real shocks in selected sectors of the economy such as global crop failures raise prices of certain goods these price increases are later validated or accommodated by expansions in the money supply so that the prices of other goods need not decline in contrast monetarist inflation explanations argue that autonomous increases in the money supply lead or cause the price increases and do not just occur ex post to accommodate real shocks ultimately both explanations recognize that without monetary expansion no long run inflation can occur the fundamental difference is

the continuing commodity crisis of developing countries abstract since the early 1980s the dominant feature of the international commodity markets has been a sharp downtrend in prices though short term instability has also remained excessively high for many commodities international policy should therefore be focused on supply management to raise depressed levels of commodity prices the problem of short term commodity price instability is best tackled by a series of international buffer stocks rather than by hedging on the financial markets a technique which has serious limitations for exporters in developing countries

from the classical economists to empiricists a review of the terms of trade controversy contrary to the classical position the works of prebisch and singer in the middle of the last century launched the controversial hypothesis of a long term decline in the terms of trade of primary products vis a vis manufactured goods and a corresponding decline in the terms of trade of developing countries vis a vis advanced ones the present study traces the origin and evolution of the hypothesis and reviews the related statistical debate it also reviews the theoretical support for the prebisch singer hypothesis it is an exercise in the history of economic thought to trace how the controversies surrounding the terms of trade have evolved over time specifically noting that with the development of the field of econometrics the central thesis of the argument got lost somewhere in the realm of hi tech statistical debates

commodity price volatility and world market integration since 1700 abstract poor countries are more volatile than rich countries and this volatility impedes their growth furthermore commodity prices are a key source of that volatility this paper explores price volatility since 1700 to offer three stylized facts commodity price volatility has not increased over time commodities have always shown greater price volatility than manufactures and world market integration breeds less commodity price volatility thus economic isolation is associated with much greater commodity price volatility while world market integration is associated with less

portfolio optimisation and the design of latin american export diversification policies this article applies portfolio optimisation analysis to assess the risk and return characteristics of commodity export structures of selected countries in latin america the analysis is conducted both for the export structure of traditionally exported commodities and for the non traditional agricultural commodities that are being promoted as part of recent export diversification efforts in these countries the results show that portfolio optimisation analysis can provide a valuable tool for the improvement of the risk return properties of various export structures

sluggish intersectoral factor movements and alternative trade policies one of the basic assumptions of the standard two sector two factor general equilibrium model of production and trade is that factors are perfectly mobile between two sectors if a policy induced or policy independent change in a parameter of the model leads to an inequality in the price of a factor as between two sectors movement of the factor from the lower price sector to the higher price one will take place under the assumption of perfect mobility and that will eventually eliminate the intersectoral difference in factor prices at the new equilibrium this assumption of perfect mobility of factors has recently been a topic of further research in the two sector production and trade literature questions have been raised about the validity of this assumption see e g mussa 5 125 41 yu 7 387 93 casas 2 747 61 yu and parai 8 601 09 and parai and yu 6 842 52 in the context of labor it is argued that a policy induced increase in the wage rate in one sector does not necessarily lead to a movement of enough labor from the other sector so as to re establish the equality between sectoral wage rates even in the long run geographical or locational preferences of individuals for living in one area over another serious attachments of workers to one region due to strong family ties or high costs of moving from one place to another have usually been the reasons for the sluggish movement of labor from one sector to the other on the other hand the sluggishness in the mobility of physical capital is explained by the investors attitude towards uncertainty in other sectors and also the high cost of moving and adjusting to the need of the new industry given this imperfect mobility the net rental rates would not equalize between two sectors even in the long run mussa and casas separately modeled the imperfect labor mobility problem whereas grossman 3 1 17 modeled the case of imperfect capital mobility hill and mendez 4 19 25 however developed a general model incorporating the imperfect mobility of both capital and labor in the two sector general equilibrium model of production parai and yu have used the both factors are imperfectly mobile the purpose of the present paper is to extend the parai yu analysis further to investigate the implications of imperfect factor mobility in the analysis of standard gains from trade issues in the literature specifically we intend

on passive money there are two ways in which the quantity of money may be included in a general equilibrium system as a datum whose value is fixed exogenously or as an unknown whose value is determined by the equilibrium system itself let them be called active money and passive money respectively current monetary theory uses the first approach the ricardo walraskeynes tradition in general equilibrium models is clearly of the activemoney variety this is also true of the more contemporary versions such as patinkin s well known system 1965 apart from the main stream of thought however a number of analyses exist which imply passive money the gold standard model as it is usually expounded belongs to this class the price of gold in terms of money is given while the stock of money is endogenously determined by the set of equilibrium conditions the form in which the quantity of money adapts to its equilibrium level differs according to the institutional mechanism convergence is assured through monetization and demonetization of gold in the pure goldcurrency system and through convertibility of notes into gold and vice versa in the gold standard system with paper money in either case the money supply is allowed to conform to its equilibrium volume this kind of monetary system in which the money price of a certain product or commodity is a datum and the quantity of money a dependent magnitude may be denoted in general as a commodity standard

optimal inventory policies when ordering prices are random we consider a single item inventory model with deterministic demands at the beginning of each period a random ordering price is received according to a known distribution function a decision must be made as to how much if any of the item to order in each period so as to minimize total expected costs while satisfying all demands we show that in each period a sequence of critical price levels determines the optimal ordering strategy so that it is optimal to satisfy the demands of the next n periods if and only if the random price falls between the nth and the n 1st levels we derive recursive expressions that describe the critical price numbers and demonstrate the relationship of these expressions to minimal expected cost we study finite horizon as well as infinite horizon models and show that the critical number strategy is also average cost optimal

the effects of volatility in the terms of trade on output growth new evidence abstract this paper examines the empirical evidence for the hypothesis that there is a negative relationship between terms of trade volatility and output growth it finds a statistically significant link between income terms of trade volatility and lower growth rates when the degree of volatility in the income terms of trade is decomposed into its components fluctuations in real exports are of a magnitude similar to those in the relative price of tradables similarly the volatility in the net barter terms of trade is equally affected by variations in the price of exports and of imports any policies aimed at stabilizing the terms of trade or any of its components need to take account of this

developing countries terms of trade in manufactures 1967 87 a note terms of trade relating only to manufactured exports and imports are calculated for a sample of 37 industrialised and developing countries over the 1967 to 1987 period it is found that the terms of trade movements were significantly more favourable for higher income countries this result highlights the importance of export diversification as part of a development strategy

on the prevalence of trends in primary commodity prices abstract this paper applies new time series procedures to examine the prebisch singer hypothesis of a secular deterioration in relative primary commodity prices specifically we allow for up to two structural breaks in 24 price series covering the 1900 98 period for the majority of commodities it is shown that the trend is not well represented by a single downward slope but instead by a shifting trend that often changes sign over the sample period unlike some recent work that has also allowed for structural breaks these results provide much less support for the prebisch singer hypothesis

demographic change and policy responses implications for the global economy the fertility declines associated with the final phase of the global demographic transition have led to slower population growth and accelerated ageing in developed countries and in several advanced developing countries a global demographic and economic model is used to assess the implications of these changes for population sizes age gender distributions labour force growth and their implications for economic performance a baseline projection that incorporates declining fertility is compared with a hypothetical constant population growth scenario the results show that slower population growth and ageing reduces average saving rates in industrial regions yet global investment demand is also slowed and saving rates rise in developing regions so there is no net tightening of financial markets increased aged labour force participation considered one solution to the resulting rise in aged dependency in advanced regions is found to redistribute investment in favour of the industrialised regions and hence to accelerate their per capita income growth while conferring on the other regions compensatory terms of trade improvements the alternative of replacement migration is found to require inconceivably large population movements it also impairs real per capita growth in destination regions but by least in western europe where the terms of trade are improved by the immigration

the economics of development a survey i the subject our definition of the subject will be the use of economic analysis to understand the economies of poor or developing countries this includes in particular how standards of living in the population are determined and how they change over time and further how policy can or should be used in the influence of these processes the definition contains in principle much or most of analytical methods in economics insofar as they can be put to use in the examination of the issues of interest this is as it should be but it poses a problem for a survey in a journal a comprehensive treatment is infeasible so we shall follow a different route the survey will focus on what i take to be the major themes and approaches which characterise the productive aspects of the subject there is therefore no pretence at being exhaustive the purpose is rather to highlight some of the advances many of these have been of real substance there are a number of possible purposes for a survey and it is important to be clear at the outset for whom it is intended what it is and what it is not this survey is addressed to economists and students of economics who know the tools of their trade but not necessarily how they have been applied to and fashioned for the analysis of the economics of developing countries it is a description of the ways in which problems can be productively formulated and approached in terms of examples chosen for their intrinsic importance and interest the vastness of the subject means that we have to be highly selective it does not seek to provide a summary evaluation of the current view of the appropriate response to immediate policy questions it is not a history of thought nor a research manifesto nor an attempt to adjudicate or settle the major debates where they arise naturally from the major purpose some judgements on these subjects will be offered but they do not themselves constitute the primary intent of this survey there are three lines of enquiry or sets of questions which have i suggest been distinctive of the most fruitful work in development economics they will

primary commodity prices co movements common factors and fundamentals the behavior of commodities is critical for developing and developed countries alike this paper contributes to the empirical evidence on the co movement and determinants of commodity prices using nonstationary panel methods we document a statistically significant degree of co movement due to a common factor within a factor augmented var approach real interest rate and uncertainty as postulated by a simple asset pricing model are both found to be negatively related to this common factor this evidence is robust to the inclusion of demand and supply shocks which both positively impact on the co movement of commodity prices

the impact of energy sector on overshooting of agricultural prices the federal reserve shifted monetary policy from early 2016 by gradually increasing nominal interest rates until very recently july 2019 a decline in commodity prices is expected in response to a contractionary policy according to the overshooting hypothesis agricultural prices could decrease more than their long run equilibrium levels i e overshoot in the short run this research contributes to the overshooting literature by including the energy sector in the overshooting model the theoretical results show that flexible energy prices share the burden of the shock with other flexible prices and thus agricultural prices and the exchange rate overshoot but less than the results of prior studies the empirical results confirm the theoretical expectation that agricultural commodities adjust faster than manufacturing prices but energy prices reduce the extent to which agricultural prices overshoot this adjustment behavior has implications for income stability and financial viability of farmers

the commodity terms of trade unit roots and nonlinear alternatives a smooth transition approach market price dynamics for north american oriented strand board markets are examined specifically the role of transactions costs are examined vis a vis the law of one price weekly data for the january 3rd 1995 through april 14th 2006 period are used in the analysis nonlinearities induced by unobservable transactions costs are modeled by estimating smooth transition autoregressions stars results indicate that nonlinearity is an important feature of these markets and that the parity relationships implied by economic theory are generally supported by the star models implications for the efficiency of spatial market linkages are examined by estimating generalized impulse response functions

unit roots flexible trends and the prebisch singer hypothesis abstract this paper studies the dynamic properties of relative commodity prices especially the prebisch singer hypothesis on their secular decline using a new family of unit root tests based on the fourier approximation to the data s underlying trend the approximation controls for low frequency variations such as structural breaks or the long swings induced by hypothesized super cycles in the data regarding the extant literature we find considerably more evidence against nonstationarity in relative commodity prices and very limited support for the prebisch singer hypothesis

the impact of terms of trade and real exchange rate volatility on investment and growth in sub saharan africa abstract specialization in primary product exports reduces growth but why adverse trends in and the high variance of primary product prices are possible explanations the impact on investment and growth of the level and volatility of the terms of trade and the real effective exchange rate is estimated for a panel of 14 sub saharan african countries over 1980 1995 growth is negatively affected by terms of trade instability and investment by real exchange rate instability both growth and investment increase when the terms of trade improve and real exchange rate overvaluation is eliminated

random walk and monetary causality in five exchange markets abstract time series behavior of monthly spot exchange rates for the french franc the deutsche mark the italian lira the japanese yen and the uk pound all priced in relation to the us dollar shows the robustness of the random walk hypothesis incremental efficiency is investigated by a new test procedure based on the reduction of the forecast error variance which is a direct implementation of the definition of granger causality exchange markets are found to be not only money efficient but also monetary efficient in that they are efficient with respect to real income and market interest rates in addition to money stock

a note on the stationarity of the primary commodities relative price index abstract the prebisch singer hypothesis of a secular decline in the relative price of primary commodities is investigated searching for the presence of a deterministic rather than stochastic trend and controlling for major structural breaks the evidence is in favour of a deterministic trend with a negative slope for the largest part of the century and a major structural break at the end of world war one

a reexamination of trends in primary commodity prices this paper conducts a reexamination of the prebisch singer hypothesis by employing the unit root test proposed by lee and strazicich 2003 and lee and strazicich 2004 that allow for up to two structural breaks given the higher power of these tests compared to the zivot and andrews 1992 and lumsdaine and papell 1997 tests rejection of the null can be considered as genuine evidence of stationarity the main findings of this paper are that eleven out of twenty four commodity prices are found to be difference stationary implying that shocks to these commodities tend to be permanent in nature the remaining thirteen prices are found to exhibit trend stationary behavior with either one or two structural breaks most of the commodities that do not exhibit difference stationary behavior seem to contain no significant trends there are fewer cases in relation to past studies of commodities that display negative trends thereby weakening the case for the prebisch singer hypothesis

the rational effect of price promotions on sales and consumption we explore the rational effect of price variation on sales and consumption in markets where consumers are uncertain about the future price of goods we first derive an optimal ordering policy which expresses the amount a consumer should purchase and consume in a given period as a function of the observed price of the good the distribution of future prices and the nature of his or her inventory this policy extends previous normative models of inventory control such as those by golabi 1985 and kalymon 1970 to the case where the amount to consume in a given period is an explicit decision variable and prices follow a first order stochastic process we then use this model to explore how changes in the long run frequency and temporal correlations of price promotions should normatively affect the contemporaneous relationship between purchase consumption and price among the predictions which follow from the model are that consumption should rationally increase with the size of existing inventories the short term sensitivity of sales to prices should be greater than that of consumption to price and this discrepancy increases with decreases in the temporal correlation of price deals and the long term relative frequency of price deals

variance ratio tests of random walk for foreign exchange rates abstract the paper presents variance ratio tests of the random walk hypothesis for foreign exchange rates the data correspond to weekly exchange rates for four foreign currencies british pound german mark japanese yen and swiss franc it is found that the series contain large permanent component and small temporary component which suggests that exchange rates follow a random walk

impact of macroeconomic policies upon agricultural trade and international agricultural development international commodity markets in the early 1980s have experienced a severe cyclical downturn high real rates of interest have discouraged stock holding and disinflation has caused asset market participants to shift out of commodities into financial assets this is only the most recent bout of turbulence since we passed from the stable bliss of the 1950s and 1960s the basic question is whether this instability results from a seemingly unending series of shocks or is there a more general basic explanation which transcends individual events

feeding and fueling china in the 21st century abstract this paper addresses the questions to what extent will china become a significant net importer of food and fuel in the foreseeable future and what will be the impact of that import demand growth on international markets it first summarizes what standard trade and development economics and the experiences of other asian economies suggest we should expect of china and then examines china s experience to date before turning to some forecasts for the next decade or so our review suggests that before long china will become a significant net importer of both food and fuels especially petroleum contrary to chinese fears however becoming more interdependent with the rest of the world need not be threatening and it may even offer more supply security for china in the long run

factor mobility and customs unions theory the standard theory of customs unions originated with the pathbreaking work of viner 11 viner draws a distinction between the trade creating and the trade diverting effects of customs unions trade creation involves a shift of consumption of the importable good from a high cost domestic producer to a lower cost foreign producer trade diversion however involves a switch from the lowest cost external producers to a higher cost producer viner argues that trade creation improves the home country s welfare and trade diversion dampens it viner s analysis was refined by gehrels 4 lipsey 8 and batra 1 the theory was reexamined in light of unemployment by yu 12 and in the presence of variable returns to scale by choi and yu 3 viner s main results were modified accordingly underlying the standard theory of customs unions is the assumption that factors are perfectly mobile between industries in a given country this assumption simplifies the analysis but cannot be supported by empirical observations it is notable that the two sector trade model has been recently extended to accommodate varying degrees of factor mobility mussa 10 considered the case in which capital is sector specific but labor displays any degree of mobility grossman 5 posited capital immobility but allowed perfect labor mobility casas 2 studied the implications of labor immobility which gives rise to an endogenous wage differential hill and mendez 6 developed a general model which allows any degree of mobility in both factors yu and parai 14 adopted casas approach to examine the gains from trade issues this factor mobility literature has generated many interesting results in the neoclassical trade theory the implications of factor immobility for the customs union theory however remain by and large unexplored the purpose of this paper is to make a modest contribution by considering the customs unions theory in the presence of any degree of mobility of both factors as a secondary contribution we elucidate how the presence of factor immobility makes the extent of factor price differentials

the prebisch singer hypothesis four centuries of evidence we employ a unique data set and new time series techniques to reexamine the existence of trends in relative primary commodity prices the data set comprises 25 commodities and provides a new historical perspective spanning the seventeenth to the twenty first centuries new tests for the trend function robust to the order of integration of the series are applied to the data results show that eleven price series present a significant and downward trend over all or some fraction of the sample period in the very long run a secular deteriorating trend is a relevant phenomenon for a significant proportion of primary commodities 2010 the president and fellows of harvard college and the massachusetts institute of technology

relative commodity prices and cointegration the prebisch singer hypothesis of a secular decline in the relative price of primary commodities is reassessed on the basis of recently available time series data for 1900 1986 special attention is given to adequate dynamic modeling of price fluctuations primary and manufactured goods prices are found to be cointegrated the hypothesis of stationarity for the long run relative price movements cannot be rejected the empirical evidence does not support the prebisch singer hypothesis

imperfect information and the comovement of the exchange rate and the interest rate a signal extraction approach this paper analyzes the joint determination of the exchange rate and the interest rate in a signal extraction framework in principle a given disturbance should generate a systematic relationship between the exchange rate and the interest rate as two endogenous variables in the context of any specified economic model when expectations matter however the introduction of imperfect information would weaken the comovement between the two endogenous variables that results from a given disturbance this simple point is demonstrated in a flexible price model of a small economy

impacts of monetary and macroeconomic factors on food prices in eastern and southern africa eastern and southern africa has been experiencing relatively large increases in real food prices since the early 1980s real food prices in some african countries grew as much as 11 per year during the 1980 1996 period the huge volatility in food prices coincided with the implementation of structural adjustment programmes in several african countries this study examines the impacts of monetary and macroeconomic factors on real food prices in eastern and southern africa using the technique of cointegration and error correction modelling to test the long run relationship between real food prices and the factors that influence their behaviour in selected african countries demand elasticities for food are estimated for selected countries the empirical results show that changes in domestic food production coupled with income trade exchange rate and monetary policies have significant impacts on real food prices with wide implications for food availability and food security in the region

some estimates of prebisch and singer effects on the terms of trade between primary producers and manufacturers abstract movements in the prices of primary products and manufactured goods are analyzed using a model based on the seminal contributions of raul prebisch and hans singer estimates are obtained from a system of equations using post wwii data on prices wages and manufacturing mark ups with the results providing evidence of the negative effects on the terms of trade of primary producers suggested by both prebisch and singer these effects more than offset positive effects arising from diminishing returns in primary production thereby providing an explanation for the negative net trend in the terms of trade of primary producers in the postwar period

agriculture s terms of trade issues and implications the article addresses 1 the issue of what agricultural commodity prices should be compared to if we are concerned with the welfare of agriculturalists 2 the general absence of product quality adjustment when analysis is undertaken comparing agricultural to manufactured goods prices 3 the extent to which energy prices are or will be the driver of both manufactured and agricultural prices and 4 the importance of considering agriculture s terms of trade tot against the service sector since the service sector is typically the largest in the economy it reflects on the basic question of whether the widespread perception that agriculture s tot secularly decline is correct

factor immobility and gains from trade the implications of imperfect factor mobility have been studied by for example batra 1 ch 10 mussa 10 grossman 7 hill and mendez 8 and casas 4 among others this factorimmobility literature has generated many interesting results in the neo classical trade theory the issue of gains from trade has been studied by batra 1 ch 4 eaton and panagariya 6 choi and yu 5 and batra and naqvi 2 the implications of imperfect factor mobility for gains from trade remain by and large unexplored the main purpose of this paper is to explore the implications of factor immobility for several gains from trade and optimal policy issues a special feature of the present paper involves an endogenously determined wage differential arising from factor immobility however the wage distortion is not a genuine distortion as the social welfare depends upon workers locational preferences in addition to consumer demands the paper is developed as follows section ii describes the model and its assumptions section iii presents the analysis regarding the optimality of free trade free trade vs no trade and the optimal policies section iv shows the welfare effects of protection measures section v offers the concluding remarks

recent trends in the terms of trade of jamaica 1955 86 the prebisch singer hypothesis of a long term deterioration in the commodity terms of trade of developing countries has evoked tremendous controversy in the literature most of the empirical work on the terms of trade is devoted to all developing countries this paper is country specific modern time series techniques have been used to test the perbisch singer hypothesis the empirical results for jamaica support the declining terms of trade hypothesis unit root tests indicate that jamaica s terms of trade is trend stationary finally the empirical evidence suggests that the decline in the terms of trade accounted for an annual loss of approximately 1 5 percent in jamaica s gdp

stockpiling under price uncertainty and storage capacity constraints abstract a model is presented for the operation of an agent whose responsibility is to purchase and perhaps stockpile sufficient quantities of a certain commodity in order to satisfy an exogenous constant demand per time period this is the situation faced by a state agency which is responsible for the purchasing of oil products to satisfy the demand of a country in which demand for energy has stabilized at a certain level an important feature of the model is that the price of the commodity is described by a stochastic process this reflects the volatility of prices of oil products furthermore the model takes storage capacity constraints explicitly into account and thus can help to assess the optimal level of storage capacity expansion the relevant stochastic dynamic programming equations are derived and solved for the least cost function which turns out to be piecewise linear in the inventory level the storage capacity enters only in the computation of the constant term of the value function the solution of the dynamic programming equation leads also to the optimal purchasing strategy of agencies with different levels of flexibility in their policy in the model an agency can be allowed or not to resell from the stock and it can have finite or infinite storage capacity

internationally traded good prices world money and economic activity 1900 83 abstract the paper reviews the long term relationship between world money and international prices using new indices of internationally traded good prices an aggregate index of manufactures fuels and non fuel primary commodities and a partial index covering only non fuel commodities it verifies such relationship using both regression analysis and direct indirect granger causality tests the relationship between money and international prices is strong significant and quite stable over time the elasticity is close to unity for all international prices and less than unity for commodity prices the direction of causality is found to be from money to price not vice versa

manufactured exports of developing countries and their terms of trade since 1965 abstract during the last 40 years since the prebisch singer terms of trade deterioration hypothesis was first proposed the commodity composition of exports of developing countries has undergone a major change in the direction of dominance of manufactures in their nonfuel exports with strong growth in the volume of their manufactured exports but this did not allow developing countries to escape unequal exchange relations with the industrial countries their barter terms of trade in manufactures showed signs of weakness rather than improvement and clearly failed to reflect the respective productivity trends leading to deterioration in factoral terms of trade

effects of the monetary macro economy on canadian agricultural prices this paper examines the importance of monetary macro economic variables on canadian agricultural prices using vector autoregressive var modeling the research results suggest that u s monetary macro economic policy as represented by the u s world exchange rate is the most significant monetary factor influencing canadian agricultural price instability the paper also examined how agricultural prices and manufactures prices respond to a monetary shock the results suggest that agricultural prices respond more quickly in the short run but that manufactures prices catch up in later periods this conclusion supports bordos contract length hypothesis and frankel s overshooting hypothesis it does not support tweeten s cost price squeeze hypothesis

long run commodity prices economic growth and interest rates 17th century to the present day a significant proportion of the trade basket of many developing countries is comprised of primary commodities this implies relative price movements in commodities may have important consequences for economic growth and poverty reduction taking a long run perspective we examine the historical relation between a new aggregate index of commodity prices economic activity and interest rates initial empirical tests show that commodity prices present a downward trend with breaks over the entire industrial age providing clear support for the prebisch singer hypothesis it would also appear that this trend has declined at a faster rate since the 1870s conversely several gdp series such as world chile china uk and us trend upwards with breaks such trending behaviour in both commodity prices and economic activity suggests a latent common factor like technological innovation to assess the relationships between economic series we apply a stationary var vector autoregression to model movements around trends strikingly there is evidence that commodity prices granger cause income and interest rates whilst interest rates granger cause commodity prices from these results and the related impulse response function analysis the historical perspective provides some useful information for contemporary policy makers for example loose monetary policy has tended to support higher commodity prices more over commodity price movements have an asymmetric country effect on economic activity periods of falling commodity prices will support gdp growth for com modity importers like the us but depress growth for commodity exporters such as chile

causality of u s agricultural prices and the money supply further empirical evidence empirical evidence presented in this study indicates that the results of causality tests of u s agricultural prices and the money supply are sensitive to the lag selection relying on the minimum final prediction error causality testing technique a unidirectional causal flow is established from the monetary base to retail level agricultural prices no such flow is found to exist from m2 to retail agricultural prices when farm level agricultural prices are investigated no causal flow exists from any of the measures of the money supply to farm prices

commodity currencies and the real exchange rate abstract this paper examines whether the real exchange rates of commodity exporting countries and the real prices of their commodity exports move together over time using international monetary fund imf data on the world prices of 44 commodities and national commodity export shares we construct new monthly indices of national commodity export prices for 58 commodity exporting countries over 1980 2002 evidence of a long run relationship between national real exchange rate and real commodity prices is found for about one third of the commodity exporting countries the long run real exchange rate of these commodity currencies is not constant as would be implied by purchasing power parity based models but is time varying being dependent on movements in the real price of commodity exports

factor mobility and the general equilibrium model of production abstract the two sector production model is generalized to accommodate any degree of mobility in the two factors the model provides a convenient framework for exploring the manner in which factor mobilities interact with factor intensities in resolving a number of basic issues in neoclassical trade theory particular emphasis is placed on determining the importance of absolute mobility when the two factors are equally mobile and of the size of the mobility differential when factor intensities are equal across sectors

the imf the world bank and commodity prices a case of shifting sands abstract this paper examines some recent developments in the thinking of both the international monetary fund and the world bank regarding the macroeconomic determinants of commodity prices and the relative importance of secular and cyclical factors in explaining their recent behavior

resource windfalls political regimes and political stability abstract we study theoretically and empirically whether natural resource windfalls affect political regimes we show that windfalls have no effect on democracies while they have heterogeneous political consequences in autocracies in deeply entrenched autocracies the effect of windfalls is virtually nil while in moderately entrenched autocracies windfalls significantly exacerbate the autocratic nature of the political system to frame the empirical work we present a simple model in which political incumbents choose the degree of political contestability and potential challengers decide whether to try to unseat the incumbents the model uncovers a mechanism for the asymmetric impact of resource windfalls on democracies and autocracies as well as the the differential impact within autocracies

biological conservation in dynamic agricultural landscapes effectiveness of public policies and trade offs with agricultural production article i nfo land use change and land management intensification are major drivers of biodiversity loss especially in agricultural landscapes that cover a large and increasing share of the world s surface incentive based agri environmental policies are designed to influence farmers land use decisions in order to mitigate environmental degradation this paper evaluates the effectiveness of agri environmental schemes for biological conservation in a dynamic agricultural landscape under economic uncertainty we develop a dynamic ecological economic model of agricultural land use and spatially explicit population dynamics we then relate policies subsidies to grassland taxation of agricultural intensity to the ecological outcome probability of persistence of a species of interest we also analyze the associated trade offs between agricultural production in value and biological conservation in probability of persistence at the landscape scale

dynamic persistence of primary commodity prices this article examines the persistence of shocks to international commodity prices from 1900 to 2008 using the updated grilli yang index the main innovation of this study is that it determines whether commodity prices are characterized by multiple changes in persistence specifically bootstrap methods are used to estimate persistence and the associated half life shocks are calculated we find that the persistence of shocks can vary widely depending on the individual commodity and the time period the results suggest that policy makers need to exercise caution when introducing measures to cushion the effect of shocks to world commodity prices

interrelationships between monetary instruments and agricultural commodity trade during the last decade agricultural economists have devoted increasing attention to the macroeconomic aspects of agricultural problems indeed a recent presidential address to the american agricultural economics association tweeten centered on the macroeconomics of agriculture given the currency of the monetary approach to macroeconomics it is not surprising therefore that there is also a growing interest in the effects of monetary instruments and monetary phenomena on agricultural commodity trade in this paper i shall discuss what i feel are some of the most pertinent issues that researchers must address in this area before we proceed too far with our discussion it is important to define what i mean by a monetary instrument perhaps arbitrarily i reserve the term monetary instrument for those macroeconomic variables which are primarily determined within domestic or international monetary markets obvious examples are the level of the money supply interest rates and exchange rates i justify the term instrument by noting that as far as the agricultural sector is concerned these variables are by and large predetermined for example the levels of the money supply and interest rates in the united states are to a large extent determined by the policy of the federal reserve similarly the price of the currency the exchange rateis ultimately determined by the demand and the supply for the currency and thus at least partially by governmental policy the first step in any attempt to outline research needs and goals is an identification of what has been done in the past although the literature on the macroeconomics of agriculture is farily large and rapidly expanding eckstein and heien lamm schuh 1976 and tweeten are important examples relatively li tl attention has been given to the effect of monetary instruments on agricultural trade what attention has been given to this area of resea ch has revolved mainly around the role of exchange rates in determining agricultural exports and prices thus it is logical to start our discussion with a brief survey of the literature on exchange rates and agriculture

imperfect factor mobility and the distribution of income abstract when labor is imperfectly mobile between industries workers may have a special interest in commercial policies that increase the price of the output of the industry in which they are employed this proposition is investigated in a two good model in which the degree of labor mobility is measured by the elasticity of a convex input transformation curve the existence of such a transformation curve is justified by a model in which individual workers have differing relative and absolute efficiencies in different industries the results are extended to the case of many industries

letter to the editor comments on on optimal inventory policies when ordering prices are random by kamal golabi comments on on optimal inventory policies when ordering prices are random by kamal golabi golabi k 1985 optimal inventory policies when ordering prices are random opns res 33 575 588

population and conflict medical innovations during the 1940s quickly resulted in significant health improvements around the world countries with initially higher mortality from infectious diseases experienced larger increases in life expectancy population and subsequent social conflict this cross country result is robust across alternative measures of conflict and is not driven by differential trends between countries with varying baseline characteristics a similar effect is also present within mexico initial suitability conditions for malaria varied across municipalities and anti malaria campaigns had differential effects on population growth and social conflict both across countries and within mexico increased conflict over scarce resources predominates and this effect is more pronounced during times of economic hardship specifically in countries with a poor growth record and in drought stricken areas in mexico at least during this time period a larger increase in population made social conflict more likely

african terms of trade and the commodity terms of trade close cousins or distant relatives this paper examines whether there is a relationship between the commodity terms of trade the price of primary commodities relative to the price of manufactures and the net barter terms of trade of 42 sub saharan african countries for most countries there is little evidence of a stable long run relationship between the two terms of trade series accordingly the practice in the literature of proxying for movements in any given country s terms of trade by using an aggregate index of relative commodity prices is inappropriate and is likely to engender misleading policy conclusions

primary commodity prices manufactured goods prices and the terms of trade of developing countries what the long run shows the authors revisit in this article the empirical foundation of the alleged secular decline in the prices of primary commodities relative to those of manufactures they use a newly constructed index of commodity prices and two modified indexes of manufactured good prices and find that from 1900 to 1986 the relative prices of all primary commodities fell on trend by 0 5 percent a year and those of nonfuel primary commodities by 0 6 percent a year they thus confirm the sign but not the magnitude of the trend implicit in the work of prebisch but even the more limited secular decline shown by their relative price indexes may be magnified by an incomplete account of quality improvements in manufactures they then show that the evolution of terms of trade of nonfuel primary commodities is not the same as that of the net barter terms of trade of non oil exporting developing countries finally they find that despite the decline that has probably occurred during the current century in the terms of trade of nonfuel primary commodities the purchasing power of total exports of these products has increased considerably similarly the fall that may have occurred after world war ii in the net barter terms of trade of developing countries seems to have been more than compensated for by the steady improvement in their income terms of trade

was this time different fiscal policy in commodity republics abstract we revisit the issue of fiscal procyclicality in commodity rich nations commodity republics in the nomenclature of this paper since commodity prices are plausibly a main driver of fiscal policy outcomes in these countries we focus on the behavior of fiscal variables across the commodity cycle in contrast to behavior across the output cycle which has been the main focus of earlier research on fiscal procyclicality we present evidence of reduced fiscal policy procyclicality in a number of countries our empirical results suggest that improvements in institutional quality have led to a more countercyclical fiscal policy stance in a number of countries the presence of fiscal rules also seems to have made a difference countries that use them displayed a larger shift toward fiscal counter cyclicality between the two episodes

do multinationals deteriorate developing countries export prices the impact of fdi on net barter terms of trade this paper explores the economic relationship between foreign direct investment fdi to developing countries and the export prices of the latter measured by terms of trade it is rst shown that economic theory suggests such a relationship for various reasons but is inconclusive about the direction of the eect to address this open issue empirically i analyze data on more than 50 developing countries throughout the period 1980 2008 using robust dynamic panel data methods the results show that fdi had an economically relevant and statistically signicant positive impact on developing countries net barter terms of trade a higher level of education in the developing country fosters this eect

the prebisch singer terms of trade hypothesis some very new evidence the chapters in this section of the book are concerned with various dimensions of an hypothesis which has become inextricably associated with the names hans singer and raul prebisch according to this hypothesis which was launched simultaneously by singer 1950 and prebisch 1950 the net barter terms of trade between primary products and manufactures have been and could be expected to continue to be subject to a downward long run trend being in direct contradiction with the then prevailing orthodoxy it is not surprising that the prebisch singer hypothesis p s hereafter attracted criticism from a number of quarters the ensuing debate which initially focused its attack on the basis of issues related to the treatment of transport costs and quality change is well summarized by spraos 1980 who showed that adjustments for shipping costs and changing quality left the hypothesis largely undented in the sense that they failed to destroy its empirical validity however since the mid 1980s the debate surrounding the p s hypothesis has shifted to the statistical arena indeed such is the interest generated by the hypothesis amongst econometricians and time series statisticians that it has established itself as one of the major test beds on which they routinely evaluate their latest methods of trend estimation

trends in natural resource commodity prices an analysis of the time domain abstract this paper attempts to reconcile the theoretical predictions of increasing real prices for nonrenewable natural resource commodities obtained from hotelling style models with the empirical findings of falling prices for these commodities a theoretical model for relative price movements is derived for the case of exogenous technical change and endogenous change in the grade of ores mined the model suggests a u shaped time path for relative prices the implied price movements are tested for all the major metals and fuels and the model parameters are found to be statistically significant for 11 out of the 12 commodities tested

an investigation of the effect of monetary factors on agriculture abstract this paper uses an econometric model to assess some of the effects of macro monetary factors on u s agricultural markets attention is focused on impacts of decreasing increasing the level of domestic credit on agricultural trade prices inventory accumulation and domestic disappearance results show that tight monetary policy lowers prices and increase demand for domestic agriculture however the upward pressure on the exchange rate seriously deteriorates the position of u s exports in international markets

agricultural diversification and policy reform the impact of risk on agriculture and the alternative ways of dealing with it has captured the attention of economists and policy makers for a long time in recent years the issue has gained renewed interest many countries have started policy reforms aimed at liberalizing domestic markets removing quantitative restrictions on trade and opening up their economies to international trade opportunities as this process develops producers in different region of the world will start facing increased price variability arising from world market fluctuations as up to now mainly due to government marke interventions domestic producer prices have varied substantially less than international ones hazell et al 1990 schiff and valdes 1992 hence risk and price risk in particular will most probably be at the core of the implementation problems associated with policy reform packages it is well known that diversification of the production mix can be a particularly efficient mechanism for diminishing the impact of risk on producers welfare in this regard different public policies may help to deepen diversification in agriculture public investment in irrigation being the most important example however since many of these policies entail a significant use of resources an important policy question concerns the impact that trade and macro reform may have on risk in agricultural activities and on the endogenous diversification response by producers the main objectives of this paper are to 1 review the problem of price risk in agriculture especially in the case of domestic markets facing international price fluctuations 2 examine the potential role for diversification as a way of diffusing price risk and 3 analyze the interaction between the process of trade and macro reform price risk and agricultural diversification it is important to mention at the outset that the risk perspective the one adopted in this paper is just one of the many angles from w this abstract was borrowed from another version of this item

multilateral trade negotiations european integration and farm policy reform trade negotiations and farm policy kym anderson why was it so hard to reach an agreement in the uruguay round to reduce agricultural protection after surveying the growth of agricultural protection in the 1980s i develop arguments based on political economy that imply a systematic tendency for governments to protect farmers increasingly at least up to some threshold as economic development proceeds agricultural protection growth in industrializing countries is therefore normal not exceptional liberalizing those policies before reaching that threshold is unattractive politically unless new influences e g from abroad upset the domestic political equilibrium the uruguay round provided such a force what made the early 1990s so significant a crossroads for farm policy reform was that coincidently there were other changes taking place in europe which lowered the domestic political cost of reforming the ec s common agricultural policy the paper argues that the reforms to farm policy during the rest of this decade as a result of the uruguay round agreement will at best be slow and messy but that is far preferable to the alternative of a failed uruguay round and continued growth of agricultural protection

approximating the effective protection coefficient without reference to technological data when proposals for reform of tariff or subsidy policies are made attempts to predict the effect on incentives are frequently hampered by the need for input output technical data this article develops and illustrates the use of a methodology for approximating effective protection coefficients epcs when such data are unavailable or outdated it derives the equations which approximate the epc from statistical analysis of a cross section of existing epc studies for four agricultural commodities corn cotton rice and wheat informational requirements for computing approximations include the nominal protection coefficients on output and tradable inputs and readily available macroeconomic data these approximation equations perform well in an out of sample test

when grilli and yang meet prebisch and singer piecewise linear trends in primary commodity prices abstract in this study we test the prebisch singer hypothesis on the secular decline of relative primary commodity prices with the extended grilli and yang 1988 data set ending at 2010 rather than asking whether it holds for the whole sample period we examine if the hypothesis holds sometimes during the sample period by estimating the piecewise linear trends of primary commodity prices we employ the new l1 trend filtering proposed by kim et al 2009 to estimate the piecewise linear trends we find that the prebisch singer hypothesis holds sometimes but not always for many of the primary commodities in the grilli yang data the strength of the prebisch singer hypothesis has become substantially weaker recently as the relative prices of many primary commodities have increased sharply since around 2000

does the law of one price really hold for commodity prices in spite of the empirical failure of the law of one price it is usually assumed that commodity prices are perfectly arbitraged at least in the long run this paper argues that this assumption is counterfactual and that much of the empirical evidence provided to support it is flawed and affected by econometric shortcomings spurious regressions nonstationarity in the data inappropriate use of first differences an alternative methodology co integration by which a long run relationship between nonstationary series can be tested is proposed tests of nonstationarity and co integration for a group of commodities show quite uniformly that the law of one price as a long run relationship fails and that deviations from the pattern are permanent

short run and long run in trade models a note abstract this paper aims to capture key features of the ricardo viner rv and heckscher ohlin ho theories in a single dynamic general equilibrium framework we use a simple 2 sector 2 factor model with adjustment costs associated with the movement of capital across sectors we analyze the economy s response to exogenous changes in factor endowments and output prices our model reproduces the predictions of the rv theory in the short run moment immediately after a parameter change and the predictions of the ho model in the long run steady state implied by a new set of parameters numerical examples of transition paths are also provided

commodity prices and money lessons from international finance many commodity prices have been falling rapidly recently as of thursday 31 july 1984 the journal of commerce s index for raw industrial materials had declined 10 relative to march and 20 relative to its peak value in 1980 in the current lull between political conventions this counts as something of a hot topic in washington some supply siders like alan reynolds from jude wanniski s firm polyconomics are warning that the large decline in commodity prices is signalling a general deflation throughout the economy and the possibility of widespread defaults reminiscent of the 1930s congressman jack kemp wants the federal reserve board to adopt a monetary policy rule that would automatically expand whenever commodity prices are low as now and automatically contract whenever commodity prices are high as in the late 1970s there has even been talk about embodying such a monetary rule as a plank in the republican party platform in dallas this month seldom before have steel scrap cotton and hides seemed so glamorous my topic today is the determination of the prices of basic commodities everything from agricultural commodities to the gold and other metals so precious to the supply siders

commodity prices and growth in africa a frican economies export primary commodities and most export little else policymakers as well as economists and historians of african economic development have seen these exports as both a hope and a curse the following parable tells the story once upon a time a servant of the ruler discovered a miraculous plant which grew readily in that country and whose seeds could be woven into fine cloth so desirable was this fabric that it became prized all over the world and fetched a high price after two score years the plant accounted for most of the country s trade with the world the ruler ordered the peasants to grow the plant paid them only a fraction of its price and he and his nobles became fabulously wealthy because the ruler wished to be remembered as a great ruler and as the father of his country he used his wealth to build a great army and brought machines from foreign countries to make the fine goods that previously could only be obtained from foreign merchants but the machines often broke down and the goods that they made were of poor quality and after the ruler died they were left to rust under the ruler s successor there was a war in a foreign land where the plant also grew so that there was a great shortage and its price increased threefold in only three seasons the new ruler spent his newfound riches on fantastic extravagance while immense sums were expended on public works after the manner of the east and on productive works carried out in the wrong way or too soon not even the threefold increase in prices could support these expenditures and the country soon found itself deeply in debt when the war ended and the price fell the country could no longer pay the interest on its debt or borrow more money even after it had sold its only useful public work to a foreign power so that power sent a mission to the country the publication of whose report from which the above

commodity booms and busts in emerging economies abstract emerging economies particularly those dependent on commodity exports are prone to highly disruptive economic cycles this paper proposes a small open economy model for a net commodity exporter to quantitatively study the triggers of these cycles the economy consists of two sectors one of which produces commodities with prices subject to exogenous international fluctuations these fluctuations affect both the competitiveness of the economy and its borrowing terms as higher commodity prices are associated with lower spreads between the country s borrowing rate and world interest rates both effects jointly result in strongly positive effects of commodity price increases on gdp consumption and investment and a negative effect on the total trade balance furthermore they generate excess volatility of consumption over output and a large volatility of investment besides explicitly incorporating a double role of commodity prices the model structure nests the various candidate sources of shocks proposed in previous work on emerging economy business cycles estimating the model on argentine data we find that the contribution of commodity price shocks to fluctuations in post 1950 output growth is in the order of 38 in addition commodity prices account for around 42 and 61 of the variation in consumption and investment growth respectively we find transitory productivity shocks to be an important driver of output fluctuations exceeding the contribution of shocks to the trend which though smaller is not negligible

the statistical debate on the net barter terms of trade between primary commodities and manufactures a comment and some additional evidence i950 p s hypothesis according to this hypothesis the net barter terms of trade nbtt between primary products and manufactures have over the longrun exhibited a downward trend spraos presented a detailed and thorough analysis of both the adequacy of the various statistical series available to proxy the nbtt s behaviour over the long run and the wide range of conceptual including quality problems involved in such an exercise on the basis of his analysis spraos concluded that the balance of the evidence for the seventy year period ending with the outbreak of world war ii supported the p s hypothesis of a secular deterioration in the nbtt it should however be noted that the evidence also suggested that the particular series cho sen for analysis by prebisch i950 himself did appear to exaggerate possibly to a large extent the rate of deterioration however when the analysis was extended to include the post world war ii period spraos found that while the deteriorating tendency cannot be decisively refuted it is open to doubt when the record up to the i970s is taken into account i980 p i26 as we shall see in this paper closer scrutiny reveals a statistical problem with spraos s analysis and the purpose of this paper is to show that once appropriate action is taken to overcome this problem some quite strong evidence in support of the p s hypothesis emerges the paper is organised as follows section i briefly discusses spraos s methodology and section ii discusses an econometric issue arising from this analysis section iii presents our empirical evidence while section iv summarises the main findings of the paper

a short note on updating the grilli and yang commodity price index the grilli and yang commodity price index is one of the most widely used commodity price series in the applied economics literature this note provides some practical advice on updating this data series by listing the base period index values identifying relevant data sources and describing a method for computing subindex weights in 1988 enzo grilli and maw cheng yang published their seminal article on the long run development of an index of 24 primary commodity prices gycpi deflated by an index of manufactured goods unit values the sample of average annual primary commodity prices covers about 54 percent of the primary commodity trade in the index reference period 1977 79 the deflators considered for manufacturing prices were the u s manufacturing price index usmpi and the manufacturing unit value index muv 1widely used and discussed the grilli and yang data set has been extended by a number of researchers the data have been employed in a variety of contexts in later studies thus the gycpi data continue to enjoy wide popularity in their own right and as a benchmark for new approaches to empirical studies

the prebisch singer hypothesis a reappraisal independent of stationarity hypotheses time series behaviour of the relative price of primary commodities raul prebisch i950 and hans singer i950 believed that the long term trend of primary commodity prices was negative the latter in an interesting discussion of the above quandary pp 482 3 viewed rises in primary commodity prices as purely temporary sources of surplus that offered short lived opportunities to increase industrial investment these opportunities were missed by private investors who instead increased primary sector investment in such circumstances because all private activity tends to be governed by the price

variable long term trends in mineral prices the ongoing tug of war between exploration depletion and technological change abstract this paper explores the use of low frequency band pass filters for describing long run trends in real mineral commodity prices this approach has the advantage of allowing long run trend rates to evolve gradually over time rather than assuming that they are constant perhaps with occasional structural breaks over time this is a flexible way of capturing the ongoing tug of war between exploration depletion and technological change over 100 mineral and commodities stretching back to the late 19th or early 20th century are considered the variety of lr trends is astonishing but very few increase monotonically contrary to the prediction of the basic hotelling model some decline monotonically as predicted by prebisch and singer some have the u shaped pattern predicted by pindyck 1978 heal 1981 and slade 1982 others have changed direction up to three times in the period since 1900 the tug of war continues with exhaustion nowhere in sight

efficiency wages disinflation and labor mobility abstract the paper analyzes the role of labor market segmentation and relative wage rigidity in the transmission process of disinflation policies in an open economy facing imperfect capital markets wages are flexible in the nontradables sector and based on efficiency factors in the tradables sector with perfect labor mobility a permanent reduction in the devaluation rate leads in the long run to a real appreciation a lower ratio of output of tradables to nontradables an increase in real wages measured in terms of tradables and a fall in the product wage in the nontradables sector under imperfect labor mobility unemployment temporarily rises

booms and slumps in world commodity prices abstract this paper examines the duration and magnitude of cycles in world commodity prices cycles are a dominant feature of commodity prices and dealing with the economic consequences of booms and slumps in prices continues to be one of the most challenging issues facing policymakers in commodity exporting developing countries we find that there is an asymmetry in commodity price cycles as price slumps last longer than price booms how far prices fall in a slump is found to be slightly larger than how far they tend to rebound in a subsequent boom in addition for most commodities the probability of an end to a slump boom in prices is independent of the time already spent in the slump boom

terms of trade shocks and economic performance 1870 1940 prebisch and singer revisited debate over trends in the terms of trade between primary commodities and manufactures their causes and their impact has dominated the literature for more than a century classical economists claimed that the terms of trade of primary commodities should improve since land and natural resources are always in inelastic supply following the great depression a new view emerged what came to be known as the prebisch singer thesis was instead that the terms of trade for primary products had deteriorated up to the 1950s the subsequent literature has almost exclusively and obsessively asked whether a deterioration has actually taken place over the 130 years following 1870 nowhere in this literature has the impact of these terms of trade shocks on long run growth been assessed although it is certainly full of lively speculation and debate this paper fills part of this empirical gap by constructing a country specific panel data base 1870 1940 by documenting terms of trade trends by country and region and finally by estimating the impact of the price shocks on long run economic performance we find the impact to have been asymmetric between center and periphery this abstract was borrowed from another version of this item

winners and losers in the commodity lottery the impact of terms of trade growth and volatility in the periphery 1870 1939 abstract most countries in the periphery specialized in the export of just a handful of primary products for most of their history some of these commodities have been more price volatile than others and those with more volatility have grown much more slowly relative to the industrial leaders and to other primary product exporters this fact helps explain the growth puzzle noted by easterly kremer pritchett and summers more than a decade ago that the contending fundamental determinants of growth institutions geography and culture exhibit far more persistence than do the growth rates they are supposed to explain using a new panel database for 35 countries this paper estimates the impact of terms of trade volatility and secular change on country performance between 1870 and 1939 volatility was much more important for growth than was secular change and accounts for a substantial degree of the divergence in incomes within the sample of small commodity dependent periphery nations as well as under performance of the periphery as a whole relative to such nations as the us and western europe or core one channel of impact seems to be the adverse effect of volatility on foreign investment it appears that the terms of trade effects were asymmetric between core and periphery