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Bargawi, Hannah, Bova, Elva, Ferrarini, Benno and Newman, Susan (2011) 'Low-income countries and commodity price volatility.' In: Cottier, Thomas and Delimatsis, Panagiotis, (eds.), The Prospects of International Trade Regulation: From Fragmentation to Coherence. Cambridge: Cambridge University Press, pp. 452-482.

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KEY MESSAGES: ∙ Low-income countries (LICs) are highly vulnerable to fluctuations in commodity prices. Excessive price volatility complicates macroeconomic management and can worsen long-run growth and development prospects. ∙ Financial speculation has caused price volatility in the international markets beyond what could possibly be explained on the grounds of fundamentals of supply and demand alone. ∙ Field studies of the cotton and coffee sectors in Tanzania and Uganda show that sound market structures and institutions need to be in place for producers, households and villages to cope with price shocks. ∙ The case study of copper in Zambia highlights the extraordinary difficulties LICs encounter in devising appropriate monetary and exchange rate policies over the commodity price cycle. ∙ Overall, we reach the conclusion that LICs' vulnerability to commodity price volatility requires international support targeting supply-side constraints, together with the establishment of a financing scheme compensating the effects of price shocks. Of course, it is crucial that international support be premised on the pursuance of sound governance and macroeconomic policy at the domestic level. ∙ In support of our argument for an increased role of foreign aid as a temporary device to counter excessive price volatility, we outline the main features of our proposal for such a compensatory financing mechanism and show, in the case of Uganda, that its application would be highly effective and relatively cost-efficient in achieving the goal of increased protection from price volatility and trade shocks more in general.

Item Type: Book Chapters
SOAS Departments & Centres: Departments and Subunits > Department of Economics
Legacy Departments > Faculty of Law and Social Sciences > Department of Development Studies > Centre for Development, Policy and Research (CDPR)
Legacy Departments > Faculty of Law and Social Sciences > Department of Development Studies
ISBN: 9781107004870
Copyright Statement: © Cambridge University Press 2011. This material has been published in 'The Prospects of International Trade Regulation: From Fragmentation to Coherence' edited by Thomas Cottier and Panagiotis Delimatsis This version is free to view and download for private research and study only. Not for re-distribution or re-use.
DOI (Digital Object Identifier):
Date Deposited: 23 May 2011 08:51

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