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Revisiting the commodity curse: a financial perspective

Alberola, Enrique and Benigno, Gianluca (2017) Revisiting the commodity curse: a financial perspective. Journal of International Economics. ISSN 0022-1996

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Identification Number: 10.1016/j.jinteco.2017.02.001

Abstract

We study the response of a three-sector commodity-exporter small open economy to a commodity price boom. When the economy has access to international borrowing and lending, a temporary commodity price boom brings about the standard wealth effect that stimulates domand and has long-run implications on the sectoral allocation of labor. If dynamic productivity gains are concentrated in the traded goods sector, the commodity boom crowds out the traded sector and delays convergence to the world technology frontier. Financial openness by stimulating current demand, amplifies the crowding out effect and may even lead to a growth trap, in which no resources are allocated to the traded sector. From a normative point of view, our analysis suggests that capital account management policies could be welfare improving in those circumstances.

Item Type: Article
Official URL: https://www.journals.elsevier.com/journal-of-inter...
Additional Information: © 2017 The Authors
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
Sets: Departments > Economics
Date Deposited: 21 Apr 2017 11:24
Last Modified: 19 Sep 2017 13:50
URI: http://eprints.lse.ac.uk/id/eprint/74055

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