The effects of commodity price shocks on economic sectors : a comparative study of metal exporters

2016

This study investigates the effect of commodity price volatility on sectoral production for

three main metal exporters: Australia, Chile, and South Africa. Using quarterly data of the

real value added per industry from 1994 to 2015, I perform a SVAR model to analyze the

impulse response functions of each industry to a 1% metal commodity price shock. The

results show that each country behaves idiosyncratically with the greatest sectoral responses

for the construction sector in South Africa, the trade sector in Chile, and the manufacturing

sector in Australia. However, some patterns arise across the sample. First, there is no

evidence of de-industrialization in the short run given a commodity boom. Second, services

and trade sectors seem to benefit from commodity price shocks. Third, the short run impact

of the mining sector reflects production capacity constraints and cost structure in the industry.

Finally, the overall assessment of the sectoral impact argues against the resource curse

hypothesis in the short run as most industries seem to improve their production given an

external shock in commodity prices. The increase in each sector after a price shock could

came by three channels: the interdependence of other industries with the mining sector, the

increase on internal demand due to the increase in private consumption, and the increase of

public spending. The results of this study could potentially inform economic policies that

allow developing countries that rely on mining activities to shield themselves from price

shocks.