Trade, income and the Baltic Dry Index

Abstract

Does trade improve the income levels of the poor and less developed nations? Focusing on the least developed countries (LDCs) designated by the United Nations, we construct a new measure of trade cost, based on the Baltic Dry Index (BDI), as an instrument for trade. The BDI reflects the cost of utilizing dry bulk carriers, which are specially designed vessels for transporting primary goods internationally, where these goods dominate the output and export sectors of the LDCs. We find that a one percent expansion in trade raises GDP per capita by approximately 0.5 percent on average. This estimate is much larger than previously found in the literature and its quantitative significance emphasizes the importance of trade towards the economic development of low income countries.

Does the Baltic Dry Index predict economic activity in South Africa? A review from 1985 to 2016

“…In the first period, the hypothesised predictive power of the BDI appears to hold true and the relationship between the BDI and the ALSI exhibits a period of significant convergence. This positive association is supported by other studies that show co-integration, high levels of correlation and significant causality between the BDI and share price indexes in both developed and developing countries (Apergis & Payne 2013;Bakshi et al 2011;Baltyn 2016;Lin & Sim 2013;Oomen 2012). …”

“…The relationship between GDP and the BDI is explained by assuming raw commodities such as corn, cocoa, coffee, primary metals and coal form the primary ingredients in industries such as the food, manufacturing and energy sectors (Feyrer 2009a(Feyrer , 2009bLin & Sim 2013;McPhail, Du & Muhammad 2012). Regional indexes like the Asian steel index have a major influence on the BDI (Chou et al 2015) and individual changes in the larger economies like China that now accounts for 50% of iron ore imports (Lin & Sim 2013). The BDI price, for instance, decreased 38% in 2 months following the decision by the Chinese government to ban new investment in industries such as steel, automobiles and real estate (Hyung-Geun 2011).…”

“…Changes therefore in the BDI have been assumed to reflect changes in future global economic activity (Alizadeh & Talley 2011;Blanchflower 2010;Lin & Sim 2013). The BDI's reliability as a predictor has been enhanced by the proposal that its calculation is devoid of speculative activity (Apergis & Payne 2013;Koskinen & Hilmola 2005).…”

The Baltic Dry Index and performance excellence in a crisis environment

“…The figure above vividly and graphically represents that something extreme is occurring in the cost of shipping dry bulk around the world. The year 2014 is witnessed the biggest drop in price (a typical seasonal pattern) at the start the year since records began [11].…”

“…They cease buying raw materials when reaching excess inventory or halting infrastructure projects. More importantly, the index measures demand for shipping capacity against the supply of dry bulk carriers, thus providing a good approximation of global economic activity [11]. The BDI continues the established time series of the Baltic Freight Index (BFI), which was introduced in 1985.…”