Commodity Super-cycle Research Articles

Determination of Zero Inflation Instrument, Commodity Supercycle and Sustainability Impact by Velocity Cryptocurrency to Support Digital Assets Management Trend: An Empirical Report From Digital Asset Commodity Transactions in Indonesia

Determination of Zero Inflation Instrument, Commodity Supercycle and Sustainability Impact by Velocity Cryptocurrency to Support Digital Assets Management Trend: An Empirical Report From Digital Asset Commodity Transactions in Indonesia

Private sector participation in infrastructure in emerging market and developing economies: Evolution, constraints, and policies

AbstractThe private sector can play important roles in closing the infrastructure investment gaps in emerging market and developing economies. However, private participation in emerging market and developing economies' infrastructure has declined over the past decade, reflecting persistent structural challenges and risks in the business environment. The decline was broad‐based and gained momentum following the 2013 taper tantrum and the end of the commodity super cycle. Incentivizing greater private sector participation in infrastructure will require policies to improve access to long‐term finance and to derisk the business environment. This will require efforts to strengthen the banking sector regulation and supervision, to improve the legal and contractual environment, and to limit information asymmetries. Deepening local financial and bond markets can make it possible for infrastructure bonds to be issued in local currencies and minimize potential currency mismatches. Improvements in the broader business environment can benefit from greater macroeconomic stability and stronger institutional frameworks. Policies that improve the quality of projects at entry, address currency risk, relax capital controls, and enable cost recovery pricing can unlock private sector participation in infrastructure financing. Strong government support, including ensuring regulatory quality, and providing well‐targeted guarantees and subsidies, can play a critical role.

Reallocation and productivity in resource-rich economies

I study the firm-level dynamic response of a commodity-exporting economy to global cycles in commodity prices. I propose a heterogeneous-firms model endogenizing manufacturing productivity slowdowns through reallocation towards less productive firms. Within a given sector, commodity booms reallocate market share away from exporters because of exchange rate appreciation and away from capital-intensive firms because of the increase in the required rate of return to capital. Using microdata for Chile, the largest copper producer worldwide, I provide empirical evidence for these channels. When fed with the commodity super-cycle of 2004–2012, the calibrated model generates between 13% to 32% of the observed productivity slowdown.

The Transmission of Commodity Price Super-Cycles

Abstract We examine two key channels through which commodity price super-cycles affect the economy: a wealth channel, through which higher commodity prices increase domestic demand, and a cost channel, through which they induce wage increases. By exploiting regional variation in exposure to commodity price shocks and administrative firm-level data from Brazil, we empirically disentangle these transmission channels. We introduce a dynamic model with heterogeneous firms and workers to further quantify the mechanisms and evaluate welfare. A counterfactual economy in which commodity booms are purely endowment shocks experiences only 30% of the intersectoral labour reallocation between tradables and nontradables, and 40% of the within-tradable labour reallocation between domestic and exported production. Finally, the consumption-equivalent welfare gain of a commodity super-cycle is twice as large in the counterfactual economy.

The impossibility of the impossible trinity? The case of Indonesia

AbstractThe impossible trinity suggests that an economy cannot simultaneously achieve a fixed exchange rate, high capital mobility, and independent monetary policy without abandoning one of these. However, This paper looks at Indonesia’s experiences from the 2009 QE and the 2013 taper tantrum, considering why Indonesian policy-makers were unable to use policies as per the trilemma, and the policy implications of this. There are three possible reasons why Indonesia found it difficult to implement this trilemma policy choice: differing monetary policy objectives, volatile floating exchange rates, and balance sheet effects. The commodity supercycle also plays an exogenous role, unable to be overcome by monetary or exchange rate policy while at the same time impacting fiscal policy, income redistribution, trade balance, and the exchange rate. Overall, this paper argues that monetary policy on its own is likely to be insufficient to manage the economy adequately. Other levers and factors, such as macroprudential policy, fiscal policy, capital flow management, and institutional quality, are critical to make the policy choices more effective.

Reflections on neo-developmentalism in the light of the Lula’s governments

Since the mid-2000s, the maintenance of the orthodox macroeconomic regime of the Lula’s governments surprised several intellectuals in the applied social sciences sector. What marks Lula’s government, especially, are two characteristics: i) the economic growth with the commodities boom or the commodities super cycle, and ii) the fight against poverty. This second phenomenon propitiated for a group of intellectuals to formulate the thesis that Brazil would be in a process of “social developmentalism”. On the other hand, a fraction of economists met to formulate a new theory, the “new developmentalism”, criticizing the process of de-industrialization, debt crisis and external dependence that occurred in Brazil. These two theoretical currents formed what some academics called “neo-developmentalism”. This article proposes to make a critical reflection and differentiation on the two currents.

Fooled by the cycle: Permanent versus cyclical improvements in social indicators

This paper studies the time series behavior of a set of widely-used social indicators and uncovers two important stylized facts. First, not all social indicators are created equal in terms of the importance of cyclical fluctuations. While some social indicators such as the unemployment rate and monetary poverty show large cyclical fluctuations, other social measures such as the Human Development Index are, by construction, dominated by long-run trends. Second, interestingly, yet not surprisingly, a large part of the cyclical fluctuations in social indicators can be explained by cyclical changes in income (proxied by real GDP per capita). For this reason, countries with large cyclical income volatility exhibit, in turn, large cyclical changes in some of these social indicators (particularly in those indicators that are more prone to cyclical fluctuations). Since cyclical income volatility is much larger in the developing world, these two critical stylized facts raise fundamental issues regarding the duration of improvements in social indicators (like the ones observed in many developing countries during the last commodity super-cycle). After a detailed conceptual and methodological discussion of these issues, and relying on a global sample of industrial and developing countries, we dig deeper into the importance of cyclical versus permanent components by extending the seminal contribution of Datt and Ravallion (1992). In particular, we show that more than 40 percent of the fall in monetary poverty observed in Latin America and the Caribbean during the so-called Golden Decade can be attributed to cyclical changes in income. While in principle universal, our concerns are particularly relevant in the developing world where, compared to developed countries, output volatility is larger and driven, to a large extent, by external factors (such as commodity prices).

Seasonality in Indian Commodities Market: Insights for modeling from preceding commodity cycle

In this study we analyze seasonal behavior of Indian agriculture, energy and metal commodities through the ten years of preceding Super-cycle (2003-13) by considering monthly data for near month futures prices to remove basis variance. The thrust of the paper is to investigate seasonal behavior of selected commodities in India using monthly seasonal dummies. We found seasonal variation in four commodities namely gold, barley, guar and Jeera. In a declining interest-rate scenario and Post-Covid world, there is elevated likelihood that we are going to witness the next commodities super-cycle. It is imperative for hedge fund managers, global investors, commodities traders, high net-worth individuals, market participants and spread-traders to know what to expect based on the preceding super-cycle to strategize better and address seasonality.

Rent-seeking in an emerging market: A DSGE approach

Due to the fact that rent-seeking is by definition an unobservable variable, measuring its size and evolution over the business cycle can be a daunting challenge. In this article, by embedding rent-seeking behavior in an otherwise standard open-economy DSGE model, we are able to derive a quarterly time series of this variable (expressed as a percentage deviation from the trend) for an emerging economy such as Brazil. The estimated series, spanning the period 2002Q1−2017Q4, shows a strong positive correlation with the “Commodity Super Cycle” of the 2000 decade and falls as a result of some political scandals and their ensuing investigations, among other driving forces. We also rely on the same model to assess how several shocks hitting the economy affect both rent-seeking and the relevant macroeconomic variables in our model. Barring monetary expansions, increased exports and higher income transfers to households, expansionary shocks are associated with lower rent-seeking activity. Factoring in these two sets of results, the upshot is that rent-seeking behavior shows a pattern of procyclicality in the Brazilian economy.

Diversificación de exportaciones: ¿es Chile diferente a Australia y Nueva Zelanda?

Este trabajo analiza el grado de diversificación de la economía chilena en relación con Australia y Nueva Zelanda durante el período 1990-2018, utilizando datos de exportaciones desagregados y distintas medidas de concentración. Australia y Nueva Zelanda se desarrollaron en un período reciente, comparten características estructurales con la economía chilena y, cuando tenían el nivel de ingreso de Chile, tenían mayores similitudes con la economía chilena que otros países que podrían usarse como modelo de desarrollo. Nuestros principales resultados indican que (i) Chile tiene un grado de concentración de exportaciones equivalente o inferior al de Australia, de acuerdo con la medición que se considere, pero superior al de Nueva Zelanda; (ii) el grado de concentración actual en Chile es similar al que tenía en 1990, a pesar del aumento observado durante el ‘superciclo’ de las materias primas; (iii) Australia y Nueva Zelanda han aumentado la concentración de sus exportaciones a lo largo del tiempo, lo cual estuvo asociado a una mayor participación de sus productos ‘tradicionales’. La experiencia de Australia y Nueva Zelanda sugiere que la diversificación hacia bienes de mayor sofisticación económica no es una condición necesaria para el desarrollo de Chile, mientras que la evidencia económica sugiere enfocar la política comercial hacia potenciar el sector exportador y no tener la diversificación de exportaciones como un objetivo en sí mismo. Finalmente, se discuten políticas públicas alternativas, como potenciar la diversificación dentro del sector de recursos naturales e impulsar las exportaciones de servicios.

Imperialism and the Geopolitics of COVID-19 in Venezuela

The impact of COVID-19 in Venezuela has merely compounded an already existing health crisis within the country. Like the rest of the Venezuelan economy and society, the breakdown of the healthcare system is largely due to the legacy of class conflict and the contradictions of Bolivarian oil-dependent development policy, which finally came to breaking point with the end of the commodity super-cycle. And yet, despite the domestic sources of the crisis, the current unfolding of the COVID-19 pandemic in Venezuela is inherently geopolitical in nature. Central to this story is the manner in which Venezuela’s domestic and electoral dynamics have become inextricably embedded within the ‘imperialist chain’ centred on Washington. The conflict between chavista and opposition forces, the constitutional crisis of 2017, the unilateral declaration of Juan Guaidó as ‘interim president’ in 2019, and an intensified sanctions regime are all differentially conditioned by US imperial strategy. This paper will unpack the interconnections between the domestic and international dynamics of Venezuela’s socio-political crisis, explore the ways in which COVID-19 has been weaponised by the Trump administration, and attempt to understand the prospects for radical political renewal under conditions of increasing geopolitical conflict.

Imperialism and the Geopolitics of COVID-19 in Venezuela

The impact of COVID-19 in Venezuela has merely compounded an already existing health crisis within the country. Like the rest of the Venezuelan economy and society, the breakdown of the healthcare system is largely due to the legacy of class conflict and the contradictions of Bolivarian oil-dependent development policy, which finally came to breaking point with the end of the commodity super-cycle. And yet, despite the domestic sources of the crisis, the current unfolding of the COVID-19 pandemic in Venezuela is inherently geopolitical in nature. Central to this story is the manner in which Venezuela’s domestic and electoral dynamics have become inextricably embedded within the ‘imperialist chain’ centred on Washington. The conflict between chavista and opposition forces, the constitutional crisis of 2017, the unilateral declaration of Juan Guaidó as ‘interim president’ in 2019, and an intensified sanctions regime are all differentially conditioned by US imperial strategy. This paper will unpack the interconnections between the domestic and international dynamics of Venezuela’s socio-political crisis, explore the ways in which COVID-19 has been weaponised by the Trump administration, and attempt to understand the prospects for radical political renewal under conditions of increasing geopolitical conflict.

El fracaso de la continuidad. La economía política del sexenio de Enrique Peña Nieto

La presidencia de Enrique Peña Nieto pretendió dar un giro de 180 grados al hecho fundamental que había marcado al gobierno anterior, la guerra en contra del crimen organizado. Para ello, decidió concentrarse en lo que llamó las reformas económicas estructurales, lo que significaba extender el modelo implementado desde los años ochenta, y que había seguido imperturbable durante los siguientes cuatro sexenios. Ello, a pesar de que durante los últimos treinta años el desempeño de la economía mexicana, así como sus efectos socioeconómicos, han sido muy decepcionantes. Esto es aún más claro si tomamos en cuenta las excepcionales condiciones en las que se desarrolló la economía internacional entre el año 2000 y 2014, en lo que se ha conocido como el superciclo de las commodities, caracterizado por un crecimiento acelerado de China, que estimuló enormemente la demanda y el precio de las materias primas, así como por la expansión de los recursos financieros provenientes de Estados Unidos, que llevó a la mayoría de los países de Latinoamérica a crecer de manera más acelerada y, sobre todo, a hacerlo al tiempo que disminuían la pobreza y la desigualdad. En contraste, México no logró aprovechar las muy favorables condiciones económicas internacionales para mejorar la situación socioeconómica de su población.

Between the Global Commodity Boom and Subnational State Capacities: Payment for Environmental Services to Fight Deforestation in Argentina

Does subnational state capacity stop deforestation? The commodity boom of the 2000s significantly expanded the agriculture frontier in most provinces of Argentina, with devastating effects on native forests. Interestingly, some of the subnational governments that presided over the commodities supercycle also sought to reform the forestry sector to reduce rampant deforestation, despite promoting and benefiting from agricultural expansion. A national program to protect native forests through payment for environmental services (PES) was created to be implemented in local districts. We argue that the success of new forest protections is contingent on the capacity of subnational governments to implement the law. In our study, we find that changes in provincial deforestation rates are explained by the interaction of state capacity, on one hand, and high land prices driven by commodity pressures, on the other. Our research carries implications for students and practitioners of forest PES. Our findings underscore the fundamental role subnational state governments play in climate change mitigation and adaptation.

Does the Commodity Super Cycle Matter?

This paper investigates empirically the role of the commodity price super cycle in explaining real activity in developed and emerging economies. The commodity price super cycle is defined as a common permanent component in real commodity prices. Estimates using quarterly and annual data from 1960 to 2018 indicate that world shocks that affect commodity prices and the world interest rate explain more than half of the variance of output growth on average across countries. However, the majority of this contribution, more than two thirds, stems from stationary world shocks. These results suggest that world disturbances that are responsible for low frequency movements in commodity prices play an important but not dominant role in driving fluctuations in aggregate activity at the country level.

Using local content policies to engender resource-based development in Zambia: A chronicle of a death foretold?

The commodity super cycle, shifting terms of trade, new oil discoveries, and altering geographies of supply and demand have restored confidence in resource-based development in the Global South. A central element herein is local content policies, which are thought to enhance host country participation in resource extraction and thus lay the foundation for structural transformation. This article analyses the extent to which local content policies trigger resource-based development. It uses Zambia as a critical case and argues that while, in theory, these policies could further domestic market formation, this is hampered in practice by local suppliers’ inability to meet the quality requirements of transnational mining corporations. It also argues that the Doing Business Indicator ranking drives the Zambian government to adopt policies that work against domestic market formation; and that power relations between transnational mining corporations and the Zambian state are imbalanced. The most likely result is that Zambia’s new Local Content Strategy has as little chance of transforming the Zambian economy as previous attempts to engender resource-based development.

Towards recoupling? Assessing the global impact of a Chinese hard landing through trade and commodity price channels

AbstractChina's rapid growth over the past decade has been one of the main drivers of the rise in mineral commodity demand and prices. While concerns about the sustainability of China's growth model are rising, we assess to what extent rebalancing through a hard landing in China would impact other countries. After reviewing the main arguments pointing to a hard landing scenario—historical rebalancing precedents, overinvestment, unsustainable debt trends and real estate bubble—we use a globalVARmethodology adapted to conditional forecasting to simulate the impact of a Chinese hard landing. We model metal and oil markets separately to account for their different end‐use patterns and consumption intensity in China. According to our estimates, emerging economies would be hardest hit—with a 7.5% cumulated growth loss after 5 years—in particular in Emerging Asia and in commodity‐exporting regions such as Latin America. The “growth gap” between emerging and advanced economies would be considerably reduced, leading to partial recoupling. In the light of these results, both the “commodity supercycle” and sustained convergence observed in emerging economies over the past decade could be to a large extent attributed to the high and unbalanced growth pattern in China.

Analysis of key value drivers for major mining companies for the period 2006–2015

The end of the 2000s commodity super cycle resulted in all-time high market values for most commodity based companies, followed by a rapid decline in the values post the Global Financial Crisis (GFC) of 2008. The period 2006–2015 was therefore an appropriate review period as it enabled reviewing changes in company value pre and post the GFC.In order to determine the key drivers of company value, financial and production data of four diversified and international mining companies was analyzed. Each of the four companies had a different commodity mix. Due to its suitability for comparison of company value, the market based valuation approach was selected as the appropriate company valuation technique, using enterprise value (EV) as the value metric.Eight potential value drivers were identified. These are production output; commodity price; revenue; earnings before interest, tax, depreciation and amortization (EBITDA) multiple; EBITDA margin; gearing ratio; net debt to EBITDA ratio; and return on capital employed (ROCE). The eight potential value drivers were analyzed firstly using graphical checks, followed by numerical determination of the degree of correlation between each potential value driver and EV using the Pearson correlation coefficient method to confirm the visual analysis. Hypothesis testing was finally done to investigate the strength of the relationships between the potential value drivers and EV.This paper notes some key findings. Revenue, commodity price and EBITDA multiple are primary drivers of value across all four companies, despite their different commodity mix. Of these three drivers revenue is the strongest value driver. It was also noted that the two debt metrics, gearing ratio and net debt to EBITDA, only correlated with EV in times of declining commodity prices and revenue, indicating that value drivers can change with changing economic conditions. It is therefore important for mining companies to periodically identify key value drivers of company value during different economic periods and ensure that they measure their performance based on these.

Agricultural Distortions and Economic Growth in Southern Africa: Evidence from Mozambique, Zambia and Zimbabwe (1970-2011)

Introduction:The first decade of 2000 was considered Africa’s decade of unprecedented growth as it was the fastest growing region in the world. This growth is believed to have largely been a benefit of the commodity super-cycle which is beginning to tail-off. Analysts perceive that growth in Africa is currently more threatened by global trends and region specific risks around agriculture and politics.Statement of the problem:It has been noted that African countries have experienced stagnant or declining agricultural productivity growth rates, increasing rural poverty, hunger and malnutrition coupled with low competitiveness in global markets over the decades.Methodology:Using the database on Distortions to Agricultural Incentives, the World Development Indicators and the Penn World Tables, the determinants of economic growth in Southern Africa and the impacts of a pro or anti agricultural policy regime on economic growth were investigated. In this study, three Southern Africa countries were investigated, that is, Mozambique, Zambia and Zimbabwe.Results:The Panel Data Analysis results suggest that 1% decrease in the degree of anti-agriculture policy bias results in a 0.1% increase in real per capita GDP. Further, 1% increase in the share of gross capital formation in GDP results in 0.04% increase in real per capita GDP.Conclusion:The study showed that reducing direct and indirect, implicit and explicit taxation to agriculture relative to non-agriculture sector would result in improved economic growth in the three Southern African countries of Zambia, Zimbabwe and Mozambique.

The commodity super price cycle and real options: Implications for the Greeks of mining firms

The Real Options Approach (ROA) to the management and valuation of mining firms should impart a distinctive pattern to the time path of the Greeks displayed by such firms during the recent price super cycle. This paper simulates the delta, gamma, vega and rho of a gold mining firm holding a portfolio of heterogeneous mines over the recent gold price cycle, to find out the telltale signs that the ROA should leave on the trajectories exhibited by such variables during that period. We show that the ROA and the standard NPV approach to mine management and valuation predict markedly different trajectories for the Greeks.