What moves commodity terms-of-trade? Evidence from 72 countries

A growing literature demonstrates the impact of commodity terms-of-trade (CTOT) on GDP growth, child mortality rates, public debt and exchange rates in developing countries. Despite its importance, little is known about the determinants of CTOT. In this paper, using data from 72 countries (grouped according to their commodity export-import structure) and covering the period from 1962 to 2010, we examine the effect of global economic activity, OECD and emerging markets growth, the real exchange rate of the U.S. dollar, stock price volatility and real interest rates on CTOT growth. Amongst other findings, we demonstrate the asymmetric effect of macro-determinants on exporters and importers, suggest the existence of a flight-to-safety effect and show that economies dominated by petroleum are better modelled by our chosen explanatory variables than their non-petroleum counterparts. Moreover, whilst measures of global growth of have little effect on non-petroleum focused exporters, emerging markets growth is positively related. Indeed, emerging markets growth is the only variable to universally and consistently affect all our country subgroups, underscoring the contemporary importance of developing country economies