Developing countries generally are not only concerned with the
level of their export earnings but also with the commodity and
geographic composition of exports, and, to a lesser extent, of imports.
Concern over a high degree of commo¬dity structure in exports is usually
based on its presumed association with adverse price movements. A more
diversified export commodity structure will reduce the impact on the
overall level of foreign-exchange earnings from price fluctuations in
any particular commodity. While concentration on a few commodities need
not be identified with being a primary commodity exporter, for many
developing countries a high degree of commodity concentration is often
correlated with the exports of primary commodities [6 ; 9]. The familiar
terms-of-trade argument, the belief that the relative price of primary
commodity exports will fall, over the long run, as compared to the price
of industrial goods imports, provides a second rationale for seeking a
diversification in the composition of exports. Even in the short run the
prices of most primary products in interna¬tional trade vary more
sharply from year to year than those of most industrial products thus
providing an additional incentive for decreasing commodity
con¬centration [5].
Terms of Trade Instability, Economic Vulnerability and Economic Growth: The Role of Institutions in Sub-Saharan Africa
