Commodity prices and economic growth: Empirical evidence from countries with different income groups

Abstract

The purpose of this paper is to examine the effect of global commodity prices such as beverage, energy, fertilizer, food, metal and mineral, precious metal and agricultural raw material on GDP per capita of countries with different income levels which are low, lower-middle, upper-middle, and high. The results of the study using panel system GMM method over the period 2007–2021 showed that for all income group countries, the impact of energy and fertilizer prices on GDP per capita is negative, while the impact of food and metal and mineral prices is positive on GDP per capita. The study also found that rising prices of agricultural raw materials reduces GDP per capita of all income group countries except lower-middle income countries. Moreover, according to the results of the study, rising beverage prices increased the GDP per capita only of high-income countries, while rising precious metal prices decreased the GDP per capita of lower-middle and high-income countries. The study revealed that price changes in all commodity groups have an impact on the GDP per capita of high-income countries. It is demonstrated that price changes in all commodity groups have an impact in both directions on the GDP per capita of all income groups, depending on whether they are net producers or net consumers. The results of the study showed that, contrary to the literature, the countries most affected by commodity prices are high-income countries. Based on the empirical findings, this study point to the need for international cooperation to minimize the adverse effects of commodity price changes.