Absorptive Capacity and the Impact of Commodity Terms of Trade Shocks in Resource Export-Dependent Economies
Results of analyses suggest, broadly, that commodity price shocks per se do not have a significant impact on real output, regardless of whether a country is natural resource dependent or not.
This paper investigates the role of “absorptive capacity” to manage unexpected shocks to the real economy, with a focus on small, open natural resource-dependent economies. Empirical investigation suggests that levels of absorptive capacity, or the ability to use resource windfalls effectively, and foreign reserves begin to matter when the sample is restricted to resource-dependent countries. Two case studies from Papua New Guinea and Timor-Leste support this claim, highlighting the challenges they face when confronted with a sudden influx of natural resource revenues and the capacity to effectively use fiscal revenues is limited.
- Introduction and Literature Review
- Data Sources and Construction
- Empirical Analysis and Results
- Case Studies: Papua New Guinea and Timor-Leste