Financialisation in the primary commodity dependent developing countries: the case of Chile

Financialisation is here defined with respect to the specific market considered in the present paper, the copper market. The commodity futures market was initially formed to serve the need to hedge risk of price movements of producers and consumers of a real commodity. In the 1990s, because of the deregulation of this market, financial investors, in their continuous search for diversification increasingly invested in futures commodity markets. Price changes in these markets became eventually one of the determinants of the real markets which then became financialised. The object of this paper is to discuss how the financialisation of a primary commodity market influences a commodity dependent developing country such as Chile whose cycle is completely determined by the commodity price movements. The paper concludes stressing on the importance of counter-cyclical policies to reduce the vulnerability of a small open economy to its commodity exports price changes.