Commodity price volatility and long-term growth

Blattman, Hwang, and Williamson (2007), “Winners and losers in the commodity lottery: The impact of terms of trade growth and volatility in the Periphery 1870-1939,” Journal of Development Economics.

Differences in price trends and volatility across primary commodities explain much of the global income divergence observed in the last century and a half. We show that most countries outside Western Europe and the US have been specialized in the export of the same handful of primary commodities for most of their history. Moreover, some commodity prices have proven more volatile than others, and some have enjoyed better secular growth…

In reconstructing nearly a century of terms of trade experience from 1870 to 1939 and assessing its impact on economic performance, we see that some commodities proved more volatile in price than others, and that those countries with more volatile terms of trade grew more slowly than other commodity-specialized nations. Countries with just one standard deviation higher volatility, moreover, grew on average more than half a percentage point per annum slower.

Trade volume and value in the crisis

Antoine Berthou  and Charlotte Emlinger at Vox:

The volume of world trade has plummeted with the global crisis. This column says that high-quality imports are more responsive to income changes than low-quality imports. This explains why world trade value fell faster during the crisis than world trade volume, which fell faster than GDP.

The Penn World Table and growth regressions

This abstract caught my eye, though I haven’t looked at the paper:

This paper sheds light on two problems in the Penn World Table (PWT) GDP estimates. First, we show that these estimates vary substantially across different versions of the PWT despite being derived from very similar underlying data and using almost identical methodologies; that this variability is systematic; and that it is intrinsic to the methodology deployed by the PWT to estimate growth rates. Moreover, this variability matters for the cross-country growth literature. While growth studies that use low frequency data remain robust to data revisions, studies that use annual data are less robust. Second, the PWT methodology leads to GDP estimates that are not valued at purchasing power parity (PPP) prices. This is surprising because the raison d’être of the PWT is to adjust national estimates of GDP by valuing output at common international (purchasing power parity [PPP]) prices so that the resulting PPP-adjusted estimates of GDP are comparable across countries. We propose an approach to address these two problems of variability and valuation.

Trade slipping?

WSJ:

Global trade flows slipped in August after rising for the two previous months, an indication that the economic recovery is more fragile and anemic than previous data have hinted.The Netherlands Bureau for Economic Policy Analysis said trade volumes fell 2% from July, according to an algorithm based on customs data from 23 developed countries and 60 emerging markets, accounting for 95% of global trade.

Distance and internet communication

Jacob Goldenberg & Moshe Levy:

while technology has undoubtedly increased the overall level of communication, this increase has been most pronounced for local social ties. We show that the volume of electronic communications is inversely proportional to geographic distance, following a Power Law. We directly study the importance of physical proximity in social interactions by analyzing the spatial dissemination of new baby names. Counter-intuitively, and in line with the above argument, the importance of geographic proximity has dramatically increased with the internet revolution.

Via Free Exchange.

Bergsten: The Dollar and the Deficits

Fred Bergsten has a lengthy piece titled “The Dollar and the Deficits” in Foreign Affairs.

In brief: “The global economic crisis has revealed the folly of large U.S. budget and trade deficits, as well as the strong dollar that makes them possible. If it is serious about recovery, the United States must balance the budget, stimulate private saving, and embrace a declining dollar.”

He says that global imbalances facilitated the crisis: “These huge inflows of foreign capital, however, turned out to be an important cause of the current economic crisis, because they contributed to the low interest rates, excessive liquidity, and loose monetary policies that — in combination with lax financial supervision — brought on the overleveraging and underpricing of risk that produced the meltdown.”

He advocates reserve currency diversification: “For the United States to avoid the resulting trade imbalances and debt buildup, some of this incremental demand should be channeled into euros, renminbi, and SDRs. Both international monetary reform and a lesser role for the dollar are very much in the interest of the United States.”

Read the full article for much more.