Commodity Boom Research Articles

More Work to Do? Taking Stock of Latin American Labor Markets

We analyze the performance of labor markets in Latin America since the late 1990s. Strong GDP growth during the commodity boom period led to important gains in employment and a fall in the unemployment rate as labor demand outpaced an increasing labor supply. We emphasize the role of informality in the dynamics of labor markets in Latin America. A re-examination of Okun's law shows that informality dampens changes in unemployment accompanying output fluctuations. Moreover, we present some evidence that countries with higher redundancy costs and cumbersome dismissal regulations, exhibit 'excess' informality over and above what would be expected based on their income and educational levels. Labor market reforms could thus contribute to reducing informality and increasing the responsiveness of labor markets to output growth. However, looking at selected case studies of reforms using the synthetic control method, we find mixed results in terms of labor market outcomes.

Middle class and public services in Brazil: commodity boom, economic crisis, and protests for a better public transportation system

RESUMOO objetivo deste trabalho é estudar o baixo nível atual de qualidade dos serviços públicos no Brasil, a fim de identificar uma relação entre a má qualidade de tais prestações e os protestos que vêm ocorrendo cada vez mais frequentemente no país. Entre outras demandas, alguns protestos foram inicialmente contra a baixa qualidade dos serviços prestados à população, especialmente o transporte público. Uma das principais razões para essa insatisfação é a recente ascensão da classe média nos países em desenvolvimento. Essa ascensão está aumentando a parcela de participação nos processos decisórios (a classe média representa cerca de metade da população brasileira), e esse engajamento está moldando novas demandas por políticas públicas mais voltadas para seus valores. A classe média tem um forte poder de consumo de bens e serviços privados: essa influência levou as empresas privadas a modelar seus produtos e serviços de acordo com suas preferências, mas os governos ainda estão oferecendo serviços de menor qualidade do que a classe média está disposta a receber. Esse descompasso leva a uma constante insatisfação pública e pode continuar a causar novas manifestações contra as atuais políticas públicas. PALAVRAS-CHAVEServiços públicos. Manifestações e multidões. Classe média. Qualidade de vida. Países em desenvolvimento.ABSTRACTThe purpose of this paper is to study the current low level of quality of public services in Brazil, in order to identify a relation between the bad quality of such provisions and the protests that have increasingly taken place in the country. Among other requests, some protests were initially against the low quality of services provided to population, especially public transportation. One main reason for this dissatisfaction is the recent rise of the middle class in developing countries. Such ascension is increasing their share of participation in the decision-making processes (the middle class represents roughly half of the population in Brazil), and this engagement is shaping new demands for public policies oriented more towards their values. The middle class has a strong power of consumption of goods and private services: this influence led private companies to model their products and services to their preferences, but governments are still delivering lower quality services than the middle class is willing to receive. This mismatch leads to constant public dissatisfaction and may continue to cause further riots against the running of current public policies. KEYWORDSPublic utilities. Riots and mobs. Middle class. Quality of life. Developing countries.

Matoy jirofo, masaka lavany: Rural–urban migrants' livelihood strategies through the lens of the clove commodity cycle in Madagascar

Residents of many African cities face economic uncertainty due to high rates of under‐ and unemployment and lack of government support. In response, many urban Africans have fortified their links to rural areas as a strategy to weather uncertainty and reduce vulnerability. Scholars have documented high rates of ownership of rural resources (e.g., land, housing, and livestock) by people living in cities as proof of the strength of rural–urban linkages in Africa. In this article, I argue that the use of rural resources to reduce urban expenditures or increase income cannot be assumed and depends on the social relationships between city and village residents. I draw on twenty‐four months of ethnographic fieldwork with rural–urban migrants in northeastern Madagascar. I focus on the clove season of 2011–12, a spectacular moment in which high yields and prices created a market boom for this agricultural commodity. While many urban migrants had claimed access to clove trees, not all of these individuals were successful in actually accessing the clove crop or the income generated from its sale during the 2011–12 season. Exploring the winners and losers in this commodity boom reveals that investing in social relationships with rural family and friends has important economic consequences for urban migrants.

The Evolution of Inequality in Latin America in the 21st Century: What are the patterns, drivers and causes?

The paper analyses the evolution of inequality for the largest economies of the Latin American region in the 21 st century, with separate consideration of income and wealth. The drivers of changes in inequality and possible underlying causes are examined, including the role of the new wave of leftist governments. The evidence reveals that income inequality decreased, though wealth inequality displayed a much less homogeneous pattern. Statistically, the decrease in inequality is associated with labour market changes, and especially with State redistribution through subsidies. Wealth inequality is mainly correlated with the change in the share of financial wealth. A possible causal interpretation is that the symbolic victories of the new left may have inflated social pressures, mostly in the presence of rents generated by the commodity boom.

On the economics of development: A view from Latin America

This paper surveys my research on development economics, undertaken in the context of the historical experiences of Brazil and Latin America. The research consists of academic papers, essays, economic fables, and reflections on my experiences in policy making. It spans different fields, including income distribution, industrial policies, dollar constraints and debt crises, commodity booms and coffee valorization, high inflation and stabilization policies, and Brazil’s growth record. JEL codes : F34, J24, N16, O11, O41, O54 Keywords : Brazil, debt crises, development economics, high inflation, income distribution, Latin America

Interpreting Contemporary Latin America through the Hypotheses of Institutional Political Economy

:This article analyzes the weak economic performance of Latin America since the end of the Import Substitution era, emphasizing the structural impediments that led to the dissipation of opportunities for viable economic policies that arose during the latest commodity boom, 2002–2012.The theoretical/analytical framework for this article derives from the developmental hypotheses of Veblen, Gerschenkron, Innis, Abramovitz, Amsden, and Chang. All addressed, in their related but varied approaches, the “catching-up” problématique—with Veblen and Abramovitz analyzing “falling-behind.” In Latin America—the theoretical formulations regarding catching-up have had minimal explanatory power, for reasons explored in the text.Pioneering institutionalists, modern “revisionist” institutionalists (e.g., Amsden) and the Latin American Structuralists (e.g., Furtado and Prebisch) often converged regarding their confidence in the efficacy of rational, operative, developmentalist policies and programs. However, only those drawing from the work of Veblen—including Innis with his analysis of the “staples trap”—seriously considered the “falling-behind” hypothesis.During the latest commodity boom, Latin America’s elite failed to exploit favorable circumstances to diversify from low-value added, volatile, commodity production due to pre-Import Substitution (i.e., nineteenth century) institutional legacies. Endogenous industrialization was fragile, while the agro-mineral-financial export elite was persistent.

The Dynamics of Industrial Development in a Resource-Rich Developing Society: A Political Economy Analysis

This article criticizes the resource curse thesis for neglecting the interplay of international factors and domestic politics, that is the political settlement, in explaining industrial performance in a resource-dependent society – Trinidad and Tobago. Using political settlement, analysis secondary as well as interview data, it examines the dynamics at the macro and sectoral levels in iron and steel and telecommunications in Trinidad and Tobago. The historical evidence reveals that anti-colonial mobilizations spurred critical public investments in developmental institutions and industrial projects responsible for improving the country’s productive base and technological capability in the post- Black Power period. These investments were bolstered by a favorable geopolitical climate and the 1973 commodity boom. Sectoral case studies reveal how shifts in the country’s political settlement affected late-industrializing accumulation of accumulation technological capabilities. Hereafter neoliberal policies facilitated an increased role for external actors in economic policy and ethnic-based clientelism within the political economy.

Government size and openness: Evidence from the commodity boom in Latin America

Does government size increase to compensate for the volatility that arises from openness? We evaluate this compensation hypothesis by focusing on Latin America, whose economic growth in the 2000s has been often attributed to the commodity boom. Panel data regressions show that during the 2003–2010 commodity boom terms of trade volatility has positive effects on government size compared to the earlier 1990–2002 period. This key finding supports the compensation hypothesis, a result robust to dynamic panels allowing for reverse causation from government size to the real economy. Policy implications include diversification of the production structure and strengthening of regulatory framework.

The Dynamics of Industrial Development in a Resource-Rich Developing Society: A Political Economy Analysis

This article criticizes the resource curse thesis for neglecting the interplay of international factors and domestic politics, the political settlement, in explaining the industrialization in Trinidad and Tobago industrial performance in a resource-dependent country. Using political settlement analysis secondary as well as interview data, it examines the dynamics at the macro and sectoral levels in iron and steel and telecommunications in Trinidad and Tobago. The historical evidence reveals that anti-colonial mobilizations spurred critical public investments in developmental institutions and industrial projects responsible for improving the country’s productive base and technological capability in the post- Black Power period. These investments were bolstered by bolstered by a favorable geopolitical climate and the 1973 commodity boom. Sectoral case studies reveal how shifts in the country’s political settlement affected late-industrializing accumulation of accumulation technological capabilities, yet neoliberal policies facilitated an increased role for external actors on economic policy and ethnic-based clientelism within the political economy.

Macroeconomic stabilization of primary commodities price cycles in developing economies

This paper proposes a strategy for stabilizing macroeconomic policy to address jointly the effects of changes in the prices of food, minerals and energy (oil). Our approach differs from the general literature, which analyzes the effects of a commodity boom or bust and therefore the solutions in terms of economic policy separately, that is, by type of commodity. The stabilization strategy that we propose considers a key fact affecting many open economies, namely, that they not only are affected by increases or decreases in commodity prices, but also benefit from them. Consequently, we use a structural model for an open economy with restricted households to show that welfare could be improved with a fiscal rule incorporating transfers to stabilize household consumption. This strategy noticeably dominates an aggressive monetary policy focused only on stabilizing inflation and a fiscal policy that has an excessive bias toward saving income from exports.

Financialization and the extractive industries: The case of South African platinum mining

This paper examines the impacts of financialization on corporate strategy in the extractive industries with a case study of South African platinum mining during the first two decades after apartheid. Drawing on insights from literature on financialization of the firm, the paper examines how intensified shareholder value pressures shaped strategy at major platinum mining companies during the long commodities boom of the 2000s and subsequent slump from 2009. The paper argues that financialization exacerbates the already intense cyclical volatility of the extractive industries. Efforts to fulfil narratives of shareholder value delivery during the boom manifested in large dividend distribution, gearing of balance sheets and aggressive outlays on capacity expansion and mergers and acquisition activity to demonstrate to the market an ambitious pipeline of growth projects. The result was financial fragility and excess capacity which has exacerbated the impact of the slump in subsequent years with severe social consequences. Distributional contest between management and organized labour has intensified as management has sought to restore internationally competitive rates of return on capital. The paper argues financialization of the firm in mining creates particularly acute distributional contestation and instability, due to the contradictions between the powerful abstractive tendencies of financialized capitalism and the social embeddedness of mining as a landed industry. The analysis has broader implications for the study of the extractive industries and development, and the political economy of post-apartheid South Africa.

Extractive industries and regional development: Lessons from Peru on the limitations of revenue devolution to producing regions

ABSTRACTThe transfer of oil and mining revenues to the subnational governments of resource-rich jurisdictions is a common policy aimed at promoting development and reducing local opposition to extraction. In the early 2000s, Peru implemented a radical version of that policy. Peruvian mining regions received fiscal transfers many times greater than the national average during the last commodity boom. The strategy had mixed effects on well-being indicators. These transfers had statistically significant positive effects on economic growth and the rate of school attendance at different ages. In contrast, they did not have a significant impact on poverty reduction or the coverage of other basic services, while being positively correlated with an increase in the income gap between women and men. Overall, the results are not as positive as the promoters had expected. The transfers generated political incentives for local authorities to pursue short-term, clientelistic spending that has reduced their potential benefits.

PRIMITIVE TECHNIQUES: FROM ‘CUSTOMARY’ TO ‘ARTISANAL’ MINING IN FRENCH WEST AFRICA

AbstractSince the commodity boom of the early 2000s, the visibility of ‘artisanal’ or ‘small-scale’ mining has grown in media coverage and development policies focused on Africa. This article argues that the regulatory category of ‘artisanal’ mining in Africa originated during the colonial period as ‘customary mining’. I build this case through a regional case study of mining policies in the colonial federation of French West Africa, where a single decree accorded African subjects ‘customary rights’ to seasonally mine gold and rock salt in restricted areas. By contrast, colonial citizens, mostly Europeans, accessed stable mining titles. Customary mining rights never codified actual African mining ‘customs’, as colonial officials argued. Rather, this law marked the boundary between the technological status of French subjects and citizens. Core elements of this colonial legal framework have been incorporated into postcolonial policies governing the rights of citizens to mineral resources in Africa.

Local Economic Voting and the Agricultural Boom in Argentina, 2007–2015

AbstractThis article investigates the effect of local economic conditions on voting behavior by focusing on the export-oriented agricultural areas of Argentina during the commodities boom. It assesses the marginal effect of export wealth on electoral outcomes by studying the impact of soybean production, the main Argentine export product during this period. The combination of rising agricultural prices and a salient national tax on exports allows us to evaluate how wealth and tax policy shape local electoral behavior. This study relies on a spatial econometric analysis of the vote across Argentine departments for the 2007–15 period, along with qualitative evidence from interviews and a descriptive analysis of government appointments.

Macroeconomic Stability in Resource-rich Countries: The Role of Fiscal Policy

Resource-rich countries face large and persistent shocks, especially coming from volatile commodity prices. Given the severity of the shocks, it would be expected that these countries adopt countercyclical fiscal policies to help shield the domestic economy, either through larger spending at times of commodity busts or lower spending during commodity booms. Taking advantage of a new dataset covering 48 non-renewable commodity exporters for the period 1970–2014, we investigate whether fiscal policy does indeed play a stabilizing role. Our analysis shows that fiscal policy tends to have a procyclical bias (mainly via expenditures) and, contrary to others, we do not find evidence that this bias has declined in recent years. Further, we find that the adoption of fiscal rules does not seem to reduce procyclicality in a significant way, but the quality of political institutions does matter. Finally, we find that non-commodity revenues tend to respond only to persistent changes in commodity prices.

Commodity price shocks and poverty reduction in Chile

This paper examines the local economic impact of large increases in metal-mining product prices on poverty in Chile. Using household data from 1998 to 2013 and exploiting differences in municipalities’ exposure to price changes, we provide evidence of a reduction in poverty rates following the positive terms of trade shock of 2003. According to our estimations, the increase in mineral prices experienced between 2003 and 2009 reduced poverty by more than 2% points in municipalities relatively exposed to the commodity boom – with at least 7% of employment in the metal-mining sector – in comparison to municipalities with no exposure to the boom. In addition, we explore some of the mechanisms explaining the reduction in poverty. We find significant effect of higher products prices on wages and employment, especially for unskilled workers and for workers employed in metal-mining industries.

Oil sector and technological development: Effects of the mandatory research and development (R&D) investment clause on oil companies in Brazil

The commodity boom at the turn of the millennium spawned growing interest in development strategies based on natural resources. The Brazilian government introduced a groundbreaking contractual clause to force oil companies to invest into research and development (R&D) 1% of gross revenues from large oilfields, with the aim of fostering technological development. To analyze the impacts of the R&D clause, we conducted 73 in-depth interviews with key informants from the oil sector. We also carried out a survey of 156 project coordinators. Our findings suggest that the R&D clause has strengthened the contribution to technological development by the national oil company, meanwhile involving new actors. The R&D clause has also boosted scientific research, technological capabilities, and innovation. However, it had a minor impact on fostering the relations between oil companies and service companies, and technology-based firms have played only a minor role.

The impacts of China on economic growth: Evidence for Brazil, Chile, and Peru

ABSTRACTThis study empirically analyzes the direct impacts derived from the swift increase in exports to China (referred to as “the impact of China”) on the economic growth of three selected South American countries, Brazil, Chile, and Peru, during the commodity boom between 2001 and 2008. The results stemming from the balance-of-payments-constrained growth model suggest that the magnitude of China’s impact was less than 1 percent, although it ranged from the largest to the second largest impact among all trading partners for the three countries. The estimated balance-of-payments growth rate of domestic income is lower than the real growth rate of domestic income. This is because the growth rates of the export volumes were not sufficient even during the commodity boom, on account of the continued increasing trends of income elasticity of demand for imports. Furthermore, the income elasticities of demand for imports from China were especially high. Therefore, the three countries will continue to face further increase in the income elasticity of demand for imports as well as a stagnant growth rate of export volumes. Thus, the balance-of-payments position will continue to be the main growth constraint for these countries.

Where Do Immigrants Settle? Assessing the Role of Immigration Policies

Using data from Australia during the commodity cycle 2001 to 2015 as a quasi-natural experiment, we explore a mutual relationship between employer-sponsored (permanent) and points-based immigration. We find that the commodity boom triggered significant wage growth in commodity-rich states, suggesting higher demand for workers. Employer-sponsored immigration varied in line with commodity prices, with commodity-rich states witnessing greater growth rates than commodity-poor states. The evidence does not support a similar trend for points-based immigrants. Moreover, employers located in commodity-rich states reduced sponsorship in the post-boom period. The evidence suggests that employer-sponsored schemes can complement points-based systems, in alleviating local labour shortages.

The mining industry after the boom

The commodity boom of 2004–2012 transformed the fortunes of the mining industry. It also catalysed some important changes in the industry, changes which are likely to have long-lasting effects. These changes include a decisive shift in the customer base of the industry towards emerging economies, particularly those in Asia; a move away from contract pricing towards spot pricing resulting in increased volatility in mineral prices; a growing role in the global industry for emerging economy mining companies; increased operating and capital cost pressures resulting from depletion and tightening environmental standards; and continuing pressures on the resource sector from nationalism and protectionism. These issues collectively represent a challenging backdrop for the establishment of regulatory frameworks for the industry which satisfy the needs of investors while at the same time providing fair and sustainable benefits for mineral host countries.