Commodity Dependence and Human Development

Abstract

This paper explores the relationship between commodity dependence and human development measured by the human development index (HDI). Commodity dependence negatively affects human development through several channels, including the negative secular terms of trade affecting commodity-dependent developing countries (CDDCs), slow economic growth, high macroeconomic instability, and political instability. The paper finds that although the effect of commodity dependence on human development is negative, on average, this relationship is complex. It changes with the level of dependence as well as the type of commodity a country depends on. This negative effect is strongest in countries where commodities account for more than 60 percent of total merchandise exports.

Economic Complexity and Human Development: DEA performance measurement in Asia and Latin America

“…This result is in line with the theoretical discussion, since countries that export technologically well tend to demand highly skilled workers and need adequate infrastructure in urban centers (Agosin, 2009;Saviotti et al, 2016;Hartmann et al, 2016). The employment rate (0.23) presented lowest correlation, although there was positive correlation as expected, because countries not dependent exclusively on commodities have a more robust economy (Nkurunziza et al, 2017). A panel of Latin American and Asian countries were collected from 2010 to 2014.…”

“…Countries capable of producing technological goods with diversified exports make the domestic market more dynamic, which requires more sophisticated and rare capacities. On the other hand, commodities dependent countries increase the macroeconomic volatility driven by unpredictable commodities prices and the real exchange-rate volatility discourages investment in tradable goods and services (Agosin, 2009;Ferrarini & Scaramozzino, 2016;Nkurunziza et al, 2017).…”

“…Countries available to produce high-technology goods, such as machinery, are more complex than commodities countries producing. Countries must overcome dependence on commodities because this causes negative or unstable terms of trade, macroeconomic volatility, Dutch disease phenomenon, and political instability (Bresser-Pereira, 2008;Nkurunziza et al, 2017).…”

“…In a productive diversification scenario of technology-intensive sectors leads a country to Gross Domestic Product (GDP) growth and income increase in long terms (Hidalgo & Hausmann, 2009). On the other hand, According to Nkurunziza et al (2017) commodity dependence is even stronger in developing regions and is often associated with a poor socio-economic performance of resource-rich developing countries. Moreover, EC presents significant correlation with HD.…”

Extractive institutions in non-tradeable industries

“…Countries heavily dependent on natural resources rents show a positive relationship between institutions quality and non-tradeable prices, probably because of a "Dutch disease" effect where commodity exporting countries experience non-tradeable inflation despite improvement in their governance (Nkurunziza et al 2017). 7 Table 1: Impact of institutions quality on the relative prices of non-tradeable goods.…”