The considerable difference in the openness of these economies results in a large variation of commodity export earnings relative to GDP.
In some cases these countries the revenues from exports of primary commodities form a large part of their foreign exchange earnings. Since many of them have severe problems ser vicingtheir debt, and practically no access to the international capital markets.
Declining earnings from commodities are usually associated with negative import growth rates, declining investment and negative real per capita income growth rates.
The increased uncertainty in the world economy.has had a considerable impact on developing countries. Those that are heavily dependent on the production andexport of non-energy commodities are the most exposed of all.
Only those that either moved into skill-intensive and technology-based industries or incorporated value-adding processes into their primary sectors were able to achieve higher income levels.
Three main dimensions: (i) the implications of commodity-dependency for overall socioeconomic development; (ii) theunderlying factors explaining commodity dependency; and (iii) workable avenues to address the commodity problem.
Primary commodities will be defined as unprocessed or low-processed products based on non-oil natural resources, akin to the classification introduced by Wood and Mayer (1998)1. Commodity dependency will therefore underline the absence of “value-added” in the productive base. Accordingly,small commodity-dependant economies will be those inserted into global markets through primary products bearing little value relative to final consumption goods.
1. Primary Commodities and Development
Economic development can be conceived as the process of moving from a set of assets based on primary products to one based on skills, technology and knowledge (Amsden, 2001). This has been2.1 The Terms of Trade Argument
This loss of relative purchasing power or “terms of trade deterioration” was, in turn, the result of four major drivers: (i) low price and income elasticities of world demand for primary commodities; (ii) continuous technological progress that economizes on the use of primary raw materials; (iii) technological superiority and the control exercised bydeveloped countries over sophisticated manufacturing technology; and (iv) monopolistic structures in developed markets contrasting with competitive structures in commodity markets (Athukorala, 2000).
2.2 The Externality Argument
Arguably, the greatest risk of commodity trade is not economic volatility or limited potential to sustain income growth relative to manufacturing. Morefundamental for development, commodity dependency may inhibit the emergence of other more dynamic sources of productivity growth such as human capital, technology, innovation and organizational capabilities.
1.3 The Institutional Argument
2. Understanding Commodity Dependency from a Global Value Chain Perspective
2.1 External or Downstream Constraints
- Governance shift- Trade-related constraints
- Entry barriers to non-commodity industries
2.2 Firm-level or Upstream Constraints
- Firm size and coordination
- Technological capacity and innovation
- Supply chain deficiencies
- Entrepreneurial drive
2.3 Framework Conditions and Structural Factors
- Framework conditions- Structural drivers of industrial performance
- Policy framework
3. The China Factor: Opportunities and Challenges
3.1 The Demand Pull
3.2 Increased Dependency
3.3 Narrow Scope for Upgrading
4. Getting Out of the Commodity Trap
4.1 Addressing External or Downstream Constraints
4.2 Addressing Firm-level or Upstream...