the type of mineral, the size and grade of the deposit, financing conditions, and numerous country-specific factors (World Bank 2016). For example, resource development takes an average of ten years for gold and more than 15 years for base metals such as zinc, lead, copper, and nickel (UNECA 2011). Similarly, tree crops are subject to high upfront costs and long investment cycles as well, in turn leading to asset fixity, an issue that has been addressed in the literature extensively (e.g., Basu and Gallardo 2021).<sup>**16**</sup> On the contrary, the production cycle of annual agricultural commodities, in addition to being short, it is characterized by a considerable degree of flexibility in input use (as noted earlier a producers can switch from, say, wheat to soybeans from one crop season to the next).

- **Policies** . Widespread and internationally coordinated policy interventions may create large and persistent price deviations from what market forces would dictate (and hence, nonlinearities). Persistent shocks due to the formation or termination of international commodity agreements has been cited by several other studies, including Cashing, Liang and McDermott (2000) as well as Gersovitz and Paxson (1990). To further investigate the role of coordinated policy actions, the last column of Table 3 reports the RMSE of a regression of the permanent component of each price on a time trend, a rough measure of the component’s degree of non-linearity. The weighted average of RMSE across all commodities is 6.21. However, the group averages varied widely from 2.46 (base metals) to 14.56 (perennial agriculture), a result that is consistent with the heterogenous behavior discussed earlier. Moreover, the highest degree of nonlinearity is present in commodities which have been subjected to international commodity agreements (cocoa, coffee, crude oil, natural rubber, and tin) or with a history of large policy interventions (cotton)—the RMSE of these seven commodities averaged 11.44 compared to 3.89 for the remaining 20 commodities.<sup>**17**</sup> These results are consistent with Stuermer (2018) who gives evidence of long run price deviations due to the international tin agreement and Jacks and Stuermer (2020) who provided similar evidence for tin and sugar.

- **Natural endowment** . The distribution of natural endowment is another characteristic that inevitably leads to concentration of production, hence leading to heterogeneity and nonlinearities. Development of metals and energy projects depend on the existence and profitable accessibility of deposits. Similarly, production of perennial

> **16** Asset fixity was frequently used as an explanation of low food commodity prices in the U.S. during the 1930s (Galbraith and Black 1938). Subsequent research, however, challenged the asset fixity hypothesis for agriculture (Chambers and Vasavada 1983).

> **17** Cotton has been subjected to a high degree of government intervention by most major producers, including subsidies by the United States and the EU, taxation of Sub-Saharan cotton producers, and various types of policy interventions by Central Asian producers. Throughout the 1960s and 1970s the cotton market was also subjected to policy distortions by the Soviet Union (Baffes 2011).

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