Is Less Commodity Dependence Better for Economic Equality, Economic Growth, and Human Development?

Abstract

Commodity dependence constitutes an economy with primary goods dominating its export structure. It can promote economic diversification and improve societal well-being if managed considerably. However, the fluctuating global commodity prices can lead to economic instability, potentially causing widespread poverty and vulnerability among the population. While commodity-dependent countries have increased, some have transitioned to commodity independence in the past decade. Nevertheless, little is known about changes in economic development indicators for these countries compared to those still reliant on commodities. This study examines how commodity dependence relates to income inequality, economic growth, and human development indicators. Using the panel-corrected standard error, fixed effect, and two-step system generalized method of moments, results indicate that commodity dependence is inversely related to income inequality and economic growth but positively related to human development. Institutional quality also matters, with better institutions linked to lower inequality and higher economic growth and human development levels. This suggests that while commodity dependence can impede economic development, better institutional quality could help manage the benefits of commodity exports while mitigating their developmental costs. JEL Classification F14, F43, O11, O15, O40