Latent Trade Diversification and Its Relevance for Macroeconomic Stability

This paper examines the economic implications of a novel concept of trade diversification—latent diversification. In contrast to traditional measures, latent diversification accounts for potential movements of factors of production into activities where the country has previous exporting experience, hence presenting an additional margin through which countries can respond to shocks. The paper shows that the gap between traditional measures of diversification and latent diversification is sizeable and that latent diversification is in its own right an important determinant of macroeconomic stability. More diversified latent export baskets are associated with lower terms-of-trade volatility and, in turn, lower GDP per capita volatility, even after controlling for the degree of contemporaneous export diversification and other country characteristics.

Multilateral Trade Liberalization and Terms of Trade Volatility

The world has experienced in recent years a rising anti-trade and anti-globalization sentiment, which would likely jeopardize recent efforts by the international trade community, in particular Members of the World Trade Organization (WTO), to promote multilateral trade liberalization (MTP). The current article investigates the impact of MTP on countries’ terms of trade volatility. Results based on a large panel dataset suggest that MTP exerts a significant reducing effect on countries’ terms of trade volatility. However, this impact appears to be dependent on countries’ development level. The take-home message is that greater cooperation on trade matters, including among WTO Members would help promote multilateral trade liberalization, which would surely contribute to reducing terms of trade volatility, for the benefits of all countries, in particular developing economies.

The Impact of Terms of Trade Volatility on Economic Growth in ASEAN Countries

This article examines the impact of terms of trade volatility on economic growth and the sources of terms of trade volatility for selected ASEAN countries. By adopting a panel cointegraion method, this study finds that fluctuations of oil price and non-fuel raw material price index have caused terms of trade volatility, which limits economic growth.

Food Prices and Food Price Volatility

This chapter examines food prices from 1900 to 2015. Despite growing populations, rising incomes, new technologies, globalization, and the emergence of commodities as an asset class, no trends are evident in food price levels or volatility. Still, food prices have averaged higher since 2010, harming the poor and raising fears that agricultural productivity growth has slowed. Consistently since 1900, food prices have been more volatile than the prices of manufactured goods and most other commodity groups. This relation drives terms-of-trade volatility, which slows economic growth. At the farm level, price volatility impedes investment and technology adoption, and encourages low-income livelihood strategies. Past policies to manage food prices have not worked and governments have shifted to policies aimed at mitigating the consequences of high and volatile food prices. Extending the reach of risk markets, warehouse receipt systems, index insurance, and contract farming can be useful policy components.