Commodity Boom Research Articles

Africa's cities of the future

With an annual economic growth rate of about 5% over the last decade, driven mainly by the commodities boom, African cities have seen skyrocketing population growth, forcing governments to face a host of development challenges.

The Local Impact of Mining on Poverty and Inequality: Evidence from the Commodity Boom in Peru

Summary This paper studies the impact of mining activity on socioeconomic outcomes in local communities in Peru. In the 1990s and 2000s, the value of Peruvian mining exports grew by 15 times; and since the early 2000s, one-half of fiscal revenues from mining have been devolved to local governments. Has this boom benefitted people in local communities? Using the district-level “poverty map” of 2007 (the latest available with accurate data on consumption, poverty, and inequality) together with district-level data on mining production and fiscal transfers to local governments, we present some evidence to answer this question. We find that mining districts have larger average consumption per capita and lower poverty rates than otherwise similar districts. These positive impacts, however, decrease drastically with administrative and geographic distance from mining centers. Moreover, consumption inequality within mining districts is higher than in comparable nonproducing districts. This dual effect of mining is accounted for by, first, the better educated immigrants required and attracted by mining activity and, second, the jobs that some community natives obtain in industries and services related to mining. The inequalizing impact of mining, both across and within districts, may help explain the social discontent with mining in Peru, despite its enormous revenues. An area for future research highlighted in the paper regards the usefulness of fiscal transfers to local governments (the Mining Canon ), a key component of the fiscal decentralization reform of 2002. We find neither a detrimental nor a beneficial effect from the Mining Canon in Peru. Whether this is explained by our early measurement of results (5 years into the decentralization program) or by the lack of implementation capacity of local governments remains to be answered.

Fulfilling Promises of More Substantive Democracy? Post‐neoliberalism and Natural Resource Governance in South America

ABSTRACTBenefiting from the commodity boom, progressive governments across South America have sought to move away from the neoliberal policies adopted previously by strengthening the role of the state and using revenues from commodity exports to address social concerns. This approach, often called neo‐extractivism, has become the main development strategy over the past 15 years. Yet, the increasingly intensive and extensive natural resource exploitation underlying this development strategy has also led to multiple protests and contestations across South America. This article thus examines the relationship between neo‐extractivism as a development strategy and the quality of democracy under progressive governments in South America. On the one hand, neo‐extractivism has allowed states to become more inclusive by paying attention to social concerns which in turn has been an important element in the legitimacy of progressive governments. On the other hand, the reliance on neo‐extractivism as the main development strategy poses important constraints on the ability of post‐neoliberal states to build more substantive democracies which could take into account a variety of positions, give citizens a say in decisions directly affecting their livelihoods, and promote public debates on key questions confronting society.

Управление природными ресурсами: влияние сырьевого бума на макроэкономические показатели, промышленный рост и благосостояние в Индонезии

The end of the commodity boom in 2012 once again exposed Indonesia to the vulnerability of the commodity price shocks. This article reviews how Indonesia managed its natural resources in 2001-12 and when the commodity boom ends. What are the lessons learned? Indonesia’s experience is similar to that of other countries rich in natural resources, including the crowding-out of non-commodity sectors, protectionist trade regimes, fiscal inefficiency, slow skill accumulation, rising inequality and environmental damages. In the aftermath of the global financial crisis of 2008-09, the early trade -policy response at the end of the commodity boom is inward-looking and protective of domestic markets and industries and aims to increase the added value of commodities by downstreaming. This trend is clearly reflected in the 2014 Trade Law, the 2014 Industry Law and the mineral export ban, which was introduced in 2009 through the 2009 Law on Mining of Coal and Minerals and took effect in 2014. Indonesia should learn from other countries in managing its resource revenues, such as through a commodity fund designed to fit its domestic specificity. Reindustrializing, increasing agricultural productivity beyond palm oil and tapping the country’s potential in the services sector including tourism and creative industries are also necessary to promote diversification in production and trade. Resource management policy should also include stronger environmental regulations.

Co-Movements between Crude Oil and Food Prices: A Post-Commodity Boom Perspective

Using the correlations of VAR forecast errors at different horizons, this paper analyses the dynamics of co-movements between crude oil and food prices. For each food price considered, the VAR model is estimated on two subsample periods: a pre-commodity boom (1990M1-2006M12) and a post-boom period (2007M1-2015M12). Results show strong positive co-movements between the crude oil and food prices in the aftermath of the commodity boom, while no statistically significant co-movements are observed over the pre-boom period. Our findings then provide an additional empirical evidence on the actual linkages between the crude oil and agricultural markets.

The evolution of commute work in the resource sectors in Canada and Australia

Commute work in the resource sectors is characterized by rotational schedules, extended workdays and (usually) company-paid transportation and camp accommodations. In both Canada and Australia these work arrangements have become standard practice since the 1980s, replacing the earlier permanent residential resource town approach. Originally designed to address labour supply and permanent settlement problems in remote areas, the commodities boom of the 2000s, combined with limited labour supply and infrastructure availability, particularly housing, has seen the commute model adopted for resource operations near existing towns and even in such towns. The recent downturn in commodity prices suggests that “lean production” will be an important consideration for resource companies into the next growth cycle, further encouraging use of the commute model and placing further pressures on existing communities to accept this approach. Demand for labour will also likely to continue to encourage companies to target specific source communities for workers. The paper summarizes the evolution of the use of the commute model in Canada and Australia and considers how it might continue to evolve in the future.

Can the cocoa cycle model explain the continuous growth of the rubber (Hevea brasiliensis) sector for more than a century in Thailand?

According to the cocoa cycle model constructed over the four centuries of cocoa history, after a commodity boom in a region, there comes a recession. When the world price increases again, that region can benefit marginally or has at least to wait for a long period before rebounding; meanwhile, a new region takes over. The case of the Thai rubber economy with continuous, long-term growth shows that several factors—ecological (physiology of the crop), technical (high yielding planting material), political (strong support from public policy) and social (important role of local populations)—can explain some of the divergence from the cocoa cycle model. This suggests a need to update and enrich the model with new scenarios and options.

Despegue frustrado: costo de vida y estándares de vida en el Perú durante el siglo XIX

Based on a variety of archival sources, this paper presents estimations for cost of living and living standards for Lima, Peru during the 19th century. During this century Peru experienced deep swings in economic activity marked by the independence wars, the War of the Pacific, and a commodity boom. These new series show that a sizable inflationary period during the guano age had dampeningeffects on the living standards of the popular class. While living standards peaked by mid 1850s, GDP per capita did not do so until two decades later. These results suggest that the guano bonanza failed to lift working-class living standards above subsistence levels. Even though living standards climbed steadily, almost reaching those of England, all these gains were lost by the end of the century.

Trading on Their Terms? Commodity Exporters in the Aftermath of the Commodity Boom

Commodity prices have declined sharply over the past three years, and output growth has slowed considerably among countries that are net exporters of commodities. A critical question for policy makers in these economies is whether commodity windfalls influence potential output. Our analysis suggests that both actual and potential output move together with commodity terms of trade, but that actual output comoves twice as strongly as potential output. The weak commodity price outlook is estimated to subtract 1 to 21/4 percentage points from actual output growth annually on average during 2015-17. The forecast drag on potential output is about one-third of that for actual output.

Products and Provinces: A Disaggregated Panel Analysis of Canada's Manufacturing Exports

The waning of the commodity boom places renewed emphasis on manufacturing as an engine for Canadian growth. However, Canadian manufacturing exports have been relatively stagnant since 2000. While the exchange rate depreciation over the past two years has energized export growth, the response has not been as strong as would have been expected given the size of the depreciation. More fundamental issues appear to be impeding the growth of the Canadian manufacturing sector. This study analyzes the structural factors behind export competitiveness by using unique Canadian data on exports, which are disaggregated both by province and by product. Matching exports to similarly disaggregated data on R&D, the capital stock and other supply-side variables, we find that these variables significantly affect export growth, beyond the impact of the exchange rate. In particular, investment in R&D, capital infrastructure and vocational training improves innovation and production capacity. These results are robust to a factor-augmented approach that controls for multicollinearity.

Trading on Their Terms? Commodity Exporters in the Aftermath of the Commodity Boom

Commodity prices have declined sharply over the past three years, and output growth has slowed considerably among countries that are net exporters of commodities. A critical question for policy makers in these economies is whether commodity windfalls influence potential output. Our analysis suggests that both actual and potential output move together with commodity terms of trade, but that actual output comoves twice as strongly as potential output. The weak commodity price outlook is estimated to subtract 1 to 2¼ percentage points from actual output growth annually on average during 2015-17. The forecast drag on potential output is about one-third of that for actual output.

The Commodity Currency Puzzle

Commodity-exporting countries have persistently high real interest rates and currency excess returns. To explain this fact, I adapt a classic idea: labor cost disease, or the Balassa-Samuelson effect. Commodity booms raise wages in exporter countries, and thus make local goods and services less affordable, raising the cost of living (real exchange rate). Since the real exchange rate then moves procyclically with commodity prices, it inherits a commodity risk premium that resolves the puzzle. Using a rare-disaster setup, I show that a stochastic, international business cycle model, with local labor used as a factor of production, can quantitatively match observed commodity currency risk premia. The model’s predictions about the co-movement of commodity prices and exchange rates, the cross-section of risk premia, and the dynamics of labor costs, are also consistent with the data. Finally, to understand the impact of monetary policy, I build a New Keynesian, sticky-wage extension. Policy choices (for example, a credible peg) can reduce the risk premium on the real exchange rate, but at the cost of bigger output gaps.

Spaces of Extraction, Metropolitan Explosions: Planetary Urbanization and the Commodity Boom in Latin America

AbstractThrough an exploration of the political economy of the current commodity boom in Latin America, and on the basis of recent appropriations of Henri Lefebvre's notion of planetary urbanization, this article proposes viewing spaces of resource extraction resulting from an escalating international demand for raw materials as particular morphological expressions of market‐driven processes of urbanization. Furthermore, the article draws on Lefebvre to argue that such burgeoning spaces of urbanization are the result of a contradictory tension between spatial homogenization—in the form of multiscalar governance frameworks and infrastructural programs—and territorial fragmentation—in the form of fixed capital allocations and state‐led spatial segregation. When considered jointly, these contradictory movements allow us to grasp fully the extent of the problematic explosion of spaces that, according to Lefebvre, characterizes capitalist urbanization. The article concludes by reflecting on the emancipatory promise that underlies the planetary extension of the urban form because, with the projection of material infrastructures required for resource extraction—especially information technologies—across the rural realm, local communities have been able to shed their isolated state and emerge as fully fledged political actors.

Flujos de capital, recursos naturales y enfermedad holandesa: el caso colombiano

This article provides empirical evidence about the relationship between capital flows, natural resource exploitation, and de-industrialisation in the case of Colombia. To this end, we analyze if the massive increase in capital inflows during the latest commodity boom led to an additional appreciation of Colombia's real effective exchange rate, thereby aggravating Dutch disease symptoms. Our results show that capital inflows, above all flows of foreign direct investment into the mining and energy sector, indeed contributed to the appreciation of Colombia's real effective exchange rate, which, in turn, negatively affected the trading sector in general, and the manufacturing sector in particular. This finding demonstrates that not only the exploitation of natural resources as such, but also the way in which this exploitation is financed influences the economies of developing countries.

Dealing with cost-push inflation in Latin America: multi-causality in a context of increased openness and commodity price volatility*

Despite recognizing the exogenous, cost-push nature of recent inflationary pressures in Latin America, plus the difficulties faced by monetary authorities in dealing, under such circumstances, with internal and external disequilibria simultaneously, intellectual attention in policy circles remains focused on demand-side issues and policy instruments. This paper develops an eclectic model that has the potential to nest demand-side elements, but focuses on cost-push factors – distributional conflict and propagation mechanisms – as typically addressed by the post-Keynesian–structuralist tradition. In addition to shedding some light on the nature of inflationary pressures as experienced in Latin American countries during the recent commodity boom – in particular South American commodity exporting economies – the paper's main goal is to portray the policy and instrumental trade-offs faced by policy-makers themselves. By bringing unconventional policy devices into the model (such as direct interventions in commodity markets), we hope to broaden the scope of the conventional macroeconomic policy instruments.

The blood of heroes: Nationalist bodies, National soils, and the scientific conservation of the Federation of Colombian Coffee-Growers (1927–1946)

This paper explores the scientific research and management programs of Colombia’s Federation of Colombian Coffee-Growers (FEDECAFE) as part of a campaign to ensure the long-term viability of the nation’s largest and most prominent export crop in the 1930s and early 1940s. Their work served a constituency of largely peasant small-holders in a period of increased erosion and declining coffee yields. Drawing on the organization’s internal records and popular publications, this research shows how new ideas about human and ecological natures were an essential component of FedeCafé hegemony, conceptually embedding the vitality of Colombian nationhood and citizenship in coffee country’s ecological systems. Further, this conceptual re-embedding of society in ecological processes was itself the result of concerted challenges to new forms of land and labor exploitation that accompanied the global capitalist commodity booms of the late nineteenth and early twentieth centuries.

Is the Reinvestment of Multinationals a Capital Flow? Local Saving and the Current Account

When a foreign company located in a country saves a portion of its profits it is classified as Foreign Direct Investment (FDI), although cash does not cross borders and resources were produced locally. We show that the more multinationals are important vis-a-vis national corporations, the larger is this Retained Earnings FDI (RE-FDI). Note that RE-FDI arithmetically widens the current account deficit if companies use them for capital expenditures. After showing that standard measures of saving (National and Domestic) are insensitive to multinationals' saving decision, we propose new indicators that treat the saving of all corporations located in the country as equal: Gross Local Saving (GLS) and Local Current Account (LCA). For example countries like Ireland and Chile have higher local current account than in the BoP, while “headquarter countries” like the US or the UK have even deeper local current account deficits. Empirically we show that, first, FDI is under some circumstances more procyclical than other flows, but mostly because of the locally generated RE-FDI and its relationship to investment. In many dimensions the cyclical behavior of RE-FDI is closest to the one of National Savings rather than to other types of capital inflows. While RE-FDI comoves positively with national savings, the rest of FDI comoves in the opposite direction. Second, as countries become more financially open they increase their RE-FDI, and the commodity boom was a significant factor behind RE-FDI in commodity countries. Finally we explore the relation between capital flows and crises. The explanatory power of current account deficits gets stronger when excluding this retained earnings FDI. In fact, this type of local saving is negatively correlated with crises. Also, the stock of RE-FDI is found to be more “protective” of macroeconomic crises. Our results suggest macro-prudential monitoring should complement its analysis with local saving measures.

Emerging Contradictions of Brazil’s Neo-Developmentalism: Precarious Growth, Redistribution, and Deindustrialization

Brazil’s political-economic structure has rapidly evolved over the past decade, shedding its shallow policy alignment with neoliberalism of the 1990s. Brazil’s large, diversified industrial base was painfully constructed over the course of the twentieth century. A major and sustained political realignment, which began in 2003, has resulted in two essential thrusts in development policy: (i) a “growth with equity” strategy that has dramatically reduced poverty and inequality; and (ii) a state-led “industrial policy” designed to upgrade manufacturing and direct the accumulation process toward specific sectors, highlighting and consolidating the National Innovation System (NIS). Nonetheless, as a result of the commodity boom that swept through Latin America, Brazil’s natural resource sector achieved outsized growth from 2002 to 2012. One result has been a shift toward resource intensive activities and a broad opening to low-cost Chinese manufactures. Utilizing an institutionalist framework and method, this article analyzes the cohesion of the NIS and the emergence of the “deindustrialization” debate. Also, it assesses the instrumental nature of the “growth with equity” strategy. The article hypothesizes the viability of an endogenous “neo-developmentalist” strategy, while acknowledging the emergence of fundamental exogenous forces and structural ceremonial/institutional factors that have impeded the consolidation of a Brazilian social structure of accumulation.

Latin American Inequality: Colonial Origins, Commodity Booms or a Missed Twentieth-Century Leveling?

Most analysts of the modern Latin American economy have held the pessimistic belief in historical persistence—they believe that Latin America has always had very high levels of inequality, and that it is the Iberian colonists' fault. Thus, modern analysts see today a more unequal Latin America compared with Asia and most rich post-industrial nations and assume that this must always have been true. Indeed, some have argued that high inequality appeared very early in the post-conquest Americas, and that this fact supported rent-seeking and anti-growth institutions which help explain the disappointing growth performance we observe there even today. The recent leveling of inequality in the region since the 1990s seems to have done little to erode that pessimism. It is important, therefore, to stress that this alleged persistence is based on an historical literature which has made little or no effort to be comparative, and it matters. Compared with the rest of the world, inequality was not high in the century following 1492, and it was not even high in the post-independence decades just prior to Latin America's belle époque and start with industrialization. It only became high during the commodity boom 1870–1913, by the end of which it had joined the rich country unequal club that included the USA and the UK. Latin America only became relatively high between 1913 and the 1970s when it missed the Great Egalitarian Leveling, which took place almost everywhere else. That Latin American inequality has its roots in its colonial past is a myth.

FIFTY YEARS OF TRADE POLICY IN INDONESIA: NEW WORLD TRADE, OLD TREATMENTS

Indonesia's trade policy has evolved over the last 50 years. It has been influenced by the country's level of development and the conflict between openness and protectionism; external developments, such as commodity booms and busts and increased competition; and international commitments, whether multilateral or regional. As a result, trade policy has often been ambivalent and ineffective. Given that Indonesia has undergone various transformations and that the world is a different place from what it was in 1965, the country needs to take a more pragmatic and forward-looking stance. Trade policy needs to be part of a comprehensive strategy to improve competitiveness and diversify exports. If Indonesia is to be part of the new paradigm, where the production of goods and services is based on production networks and global value chains, its policy focus will need to shift from protecting and favouring sectors to promoting trade and industrial policies that encourage the flow of goods, services, and people.