Commodity Prices and Development

Abstract More than fifty developing countries depend on three or fewer commodities for more than half of their exports. In fact, reliance on only a single commodity for a large share of export earnings is quite common in these countries, exposing them to the risk of export earnings instability as a result of price shocks and, perhaps even more significantly, falling purchasing power of exports over the long run in the face of the declining real price of the commodity in question. The problems faced by commodity-dependent developing countries are formidable. Although diversification is the most appropriate response to the problem of the secular decline in commodity prices, long-term transformation in the economy can be a slow process and, in the long-run, the success will depend on a host of such factors as the development of human resources, institutional capacity building, poverty alleviation, and appropriate domestic policy and environment. By granting increased aid flows and debt relief, and providing assistance to encourage production of non-traditional export items, the international community can play a proactive role in the development of the commodity dependent poor countries. Only concerted efforts both at the domestic fronts of these countries and co-operation extended by the international community can help mitigate the problem of the world's most vulnerable economies.