Macroeconomic effects of terms-of-trade shocks : the case of oil-exporting countries

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Macroeconomic effects of terms-of-trade shocks : the case of oil-exporting countries, Volume 1

Author:	Spatafora, Nikola; Warner, Andrew;	Collection Title:	Policy, Research working paper ; no. WPS 1410
Country:	Saudi Arabia; Oman; Mexico; Algeria; Kuwait; Venezuela, Republica Bolivariana de; Iraq; Congo, Republic of; Iran, Islamic Republic of; Syrian Arab Republic; United Arab Emirates; Gabon; Nigeria; Trinidad and Tobago; Egypt, Arab Republic of; Ecuador; Bahrain; Indonesia;	Date Stored:	2001/04/20
Document Date:	1995/01/31	Document Type:	Policy Research Working Paper
Language:	English	Major Sector:	(Historic)Economic Policy
Region:	East Asia and Pacific; Africa; Middle East and North Africa; Latin America & Caribbean	Report Number:	WPS1410
Sub Sectors:	Macro/Non-Trade	SubTopics:	Environmental Economics & Policies; Economic Theory & Research; Payment Systems & Infrastructure; Free Trade; Inequality; Labor Policies; Financial Intermediation
Volume No:	1

Summary: The authors investigate the impact on economic growth and development of long-run movements in the external terms of trade, with special reference to the experience of 18 oil-exporting countries between 1973 and 1989. They argue that this sample approximates a controlled experiment for examining the impact of unanticipated -- but permanent -- shocks to the terms of trade. They analyze the sample econometrically using panel data techniques. They find that permanent terms-of-trade shocks have a strongly significant positive effect on investment, which they justify theoretically on the grounds that countries in the sample import much of their capital equipment. The shocks also have a significant positive effect on consumption. Government consumption responds almost twice as strongly as private consumption. The shocks have no effect on savings and adversely affect the trade and current account balances. There is a significant positive effect on the output of all main categories of nontradables. But Dutch disease effects are strikingly absent. Agriculture and manufacturing do not contract in reaction to an oil price increase. Dutch disease effects may be absent in part because of policy-induced output restraints in the oil sector, or because of the "enclave" nature of the oil sector, which does not participate in domestic factor markets.


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