Trade Fluctuations and Buffer Policies of Low-income Countries (1958)

Abstract

Instability of Export Earnings: Causes and Effects Agricultural production suffers from a good deal of natural instability due to weather, pests and plant diseases. As if this were not enough to relieve the monotony of rural life, the notorious cyclical variations in export proceeds are superimposed on the random changes in output. If movements on the supply side were the dominant factor in the export trade of primary producing countries, then export prices and quantities would tend to fluctuate inversely. Actually, prices and quantities accentuate—instead of mutually offsetting—each other in their effect on the export proceeds of primary producing countries. This fact is brought out clearly in a recent United Nations study. Based on the experience of the first half of the present century (1901–1951), this study finds that, on the whole, price and quantity changes contribute about equally to the cyclical ups and downs in export proceeds realised for the leading primary commodities that enter into international trade. Indeed, the cyclical variability of export quantities is, rather surprisingly, somewhat greater than that of export prices: the average fluctuation per annum turns out to be 17 % for the quantities and 14% for the prices of the 18 major products. The parallel movement of export prices and export quantities reflects unmistakably the dominant role of demand conditions. It furnishes conclusive proof—if proof were needed—that the export fluctuations of primary producing countries originate in the world's industrial centers.

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