IDEAS home Printed from https://ideas.repec.org/a/sae/pubfin/v51y2023i2p236-261.html
   My bibliography  Save this article

Effect of International Commodity Price Shocks on Public Finances in Africa

Author

Listed:
  • Dakpoulé Da
  • Mahamadou Diarra

Abstract

This paper empirically investigates the macroeconomic responses to commodity price shocks with a focus on fiscal variables in a sample of thirty-three African commodity-dependent countries. Using the heterogeneous panel structural vector autoregressive (SVAR) approach developed by Pedroni, we find that government revenues as well as government expenditures react to commodity export prices shock. However, there is a large degree of heterogeneity across countries. Following country characteristics, we find that the response of fiscal variables is higher for countries dependent on extractive commodities than those dependent on agricultural ones. We also highlight the benefits of flexible exchange rate regimes for accommodating external shocks and ensuring macroeconomic stability, which in turn is beneficial to government revenue mobilization. Our results suggest that the African government should seize commodities as an opportunity and increase their efforts in revenue mobilization during price booms and make a productive investment to isolate their finances from commodity price collapses.

Suggested Citation

  • Dakpoulé Da & Mahamadou Diarra, 2023. "Effect of International Commodity Price Shocks on Public Finances in Africa," Public Finance Review, , vol. 51(2), pages 236-261, March.
    • Handle: RePEc:sae:pubfin:v:51:y:2023:i:2:p:236-261
    DOI: 10.1177/10911421221137426
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/10911421221137426
    Download Restriction: no
    File URL: https://libkey.io/10.1177/10911421221137426?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Pablo Lopez Murphy & Mr. Mauricio Villafuerte & Mr. Rolando Ossowski, 2010. "Riding the Roller Coaster: Fiscal Policies of Nonrenewable Resource Exporters in Latin America and the Caribbean," IMF Working Papers 2010/251, International Monetary Fund.
    2. Luis Felipe Céspedes & Andrés Velasco, 2012. "Macroeconomic Performance During Commodity Price Booms and Busts," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 60(4), pages 570-599, December.
    3. Frederick van der Ploeg, 2011. "Natural Resources: Curse or Blessing?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 366-420, June.
    4. Elva Bova & Paulo Medas & Tigran Poghosyan, 2018. "Macroeconomic Stability in Resource-rich Countries: The Role of Fiscal Policy," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(9), pages 103-122, May.
    5. Peter Pedroni, 2013. "Structural Panel VARs," Econometrics, MDPI, vol. 1(2), pages 1-27, September.
    6. Francis Y Kumah & John M Matovu, 2007. "Commodity Price Shocks and the Odds on Fiscal Performance: A Structural Vector Autoregression Approach," IMF Staff Papers, Palgrave Macmillan, vol. 54(1), pages 91-112, May.
    7. Trung Duc Tran, 2021. "The macroeconomic effects of commodity price uncertainty," CAMA Working Papers 2021-09, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    8. Radetzki, Marian, 1985. "Effects of a dollar appreciation on dollar prices in international commodity markets," Resources Policy, Elsevier, vol. 11(3), pages 158-159, September.
    9. Issouf Samaké & Mr. Nikola Spatafora, 2012. "Commodity Price Shocks and Fiscal Outcomes," IMF Working Papers 2012/112, International Monetary Fund.
    10. Samuel Guérineau & Hélène Ehrhart, 2012. "The impact of high and volatile commodity prices on public finances: Evidence from developing countries," Working Papers halshs-00659100, HAL.
    11. Samuel Guérineau & Hélène Ehrhart, 2012. "The impact of high and volatile commodity prices on public finances: Evidence from developing countries," Working Papers halshs-00659098, HAL.
    12. Samuel Guérineau & Hélène Ehrhart, 2012. "The impact of high and volatile commodity prices on public finances: Evidence from developing countries," CERDI Working papers halshs-00659098, HAL.
    13. Ms. Nese Erbil, 2011. "Is Fiscal Policy Procyclical in Developing Oil-Producing Countries?," IMF Working Papers 2011/171, International Monetary Fund.
    14. Ms. Concha Verdugo Yepes & Mr. Peter L. Pedroni & Xingwei Hu, 2015. "Crime and the Economy in Mexican States: Heterogeneous Panel Estimates (1993-2012)," IMF Working Papers 2015/121, International Monetary Fund.
    15. Bleaney,Michael Francis & Halland,Havard, 2016. "Do resource-rich countries suffer from a lack of fiscal discipline ?," Policy Research Working Paper Series 7552, The World Bank.
    16. Leandro Medina, 2010. "The Dynamic Effects of Commodity Prices on Fiscal Performance in Latin America," IMF Working Papers 2010/192, International Monetary Fund.
    17. Graciela L Kaminsky, 2010. "Terms of Trade Shocks and Fiscal Cycles," RBA Annual Conference Volume (Discontinued), in: Renée Fry & Callum Jones & Christopher Kent (ed.),Inflation in an Era of Relative Price Shocks, Reserve Bank of Australia.
    18. Aditya Shrinivas & Miguel I. Gómez, 2016. "Price transmission, asymmetric adjustment and threshold effects in the cotton supply chain: a case study for Vidarbha, India," Agricultural Economics, International Association of Agricultural Economists, vol. 47(4), pages 435-444, July.
    19. Rina Bhattacharya & Pranav Gupta & Xingwei Hu & Peter Pedroni, 2018. "How do Structural Features Affect Corporate Exposures to Macro-financial Shocks in Open Economies?," Department of Economics Working Papers 2018-10, Department of Economics, Williams College.
    20. Medina, Leandro, 2010. "A Commodity Curse? The Dynamic Effects of Commodity Prices on Fiscal Performance in Latin America," MPRA Paper 21690, University Library of Munich, Germany.
    21. Sun, Xiaohua & Ren, Junlin & Wang, Yun, 2022. "The impact of resource taxation on resource curse: Evidence from Chinese resource tax policy," Resources Policy, Elsevier, vol. 78(C).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Richard Wamalwa Wanzala & Lawrence Ogechukwu Obokoh, 2024. "Sustainability Implications of Commodity Price Shocks and Commodity Dependence in Selected Sub-Saharan Countries," Sustainability, MDPI, vol. 16(20), pages 1-26, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Monoj Kumar Majumder & Mala Raghavan & Joaquin Vespignani, 2020. "Commodity price volatility, fiscal balance and real interest rate," CAMA Working Papers 2020-79, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    2. Monoj Kumar Majumder & Mala Raghavan & Joaquin Vespignani, 2022. "The impact of commodity price volatility on fiscal balance and the role of real interest rate," Empirical Economics, Springer, vol. 63(3), pages 1375-1402, September.
    3. Makhlouf, Yousef & Kellard, Neil M. & Vinogradov, Dmitri, 2017. "Child mortality, commodity price volatility and the resource curse," Social Science & Medicine, Elsevier, vol. 178(C), pages 144-156.
    4. Hélène Ehrhart & Samuel Guérineau, 2012. "Commodity price volatility and Tax revenues: Evidence from developing countries," CERDI Working papers halshs-00658210, HAL.
    5. Arroyo Marioli, Francisco & Fatas, Antonio & Vasishtha, Garima, 2024. "Fiscal policy volatility and growth in emerging markets and developing economies," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 758-777.
    6. Gondo, Rocío & Pérez, Fernando, 2018. "The Transmission of Exogenous Commodity and Oil Prices shocks to Latin America - A Panel VAR approach," Working Papers 2018-012, Banco Central de Reserva del Perú.
    7. Lopez-Martin, Bernabe & Leal, Julio & Martinez Fritscher, Andre, 2019. "Commodity price risk management and fiscal policy in a sovereign default model," Journal of International Money and Finance, Elsevier, vol. 96(C), pages 304-323.
    8. Snudden, Stephen, 2016. "Cyclical fiscal rules for oil-exporting countries," Economic Modelling, Elsevier, vol. 59(C), pages 473-483.
    9. Samuel Guérineau & Hélène Ehrhart, 2012. "The impact of high and volatile commodity prices on public finances: Evidence from developing countries," CERDI Working papers halshs-00659100, HAL.
    10. Samuel Guérineau & Hélène Ehrhart, 2012. "The impact of high and volatile commodity prices on public finances: Evidence from developing countries," Working Papers halshs-00659100, HAL.
    11. Majumder, Monoj Kumar & Raghavan, Mala & Vespignani, Joaquin, 2020. "Commodity price volatility, external debt and exchange rate regimes," Working Papers 2020-13, University of Tasmania, Tasmanian School of Business and Economics.
    12. Michael Pedersen, 2019. "The impact of commodity price shocks in a copper-rich economy: the case of Chile," Empirical Economics, Springer, vol. 57(4), pages 1291-1318, October.
    13. Clément Anne, 2016. "Are Commodity Price Booms an Opportunity to Diversify? Evidence from Resource-dependent Countries," Working Papers halshs-01381143, HAL.
    14. Céspedes, Luis Felipe & Velasco, Andrés, 2014. "Was this time different?: Fiscal policy in commodity republics," Journal of Development Economics, Elsevier, vol. 106(C), pages 92-106.
    15. Clement ANNE, 2016. "Are Commodity Price Booms an Opportunity to Diversify? Evidence from Resource-dependent Countries," Working Papers 201615, CERDI.
    16. Wee Chian Koh, 2017. "Fiscal Policy in Oil-exporting Countries: The Roles of Oil Funds and Institutional Quality," Review of Development Economics, Wiley Blackwell, vol. 21(3), pages 567-590, August.
    17. Issouf Samaké & Mr. Nikola Spatafora, 2012. "Commodity Price Shocks and Fiscal Outcomes," IMF Working Papers 2012/112, International Monetary Fund.
    18. Monoj Kumar Majumder & Mala Valliammai Raghavan & Joaquin L. Vespignani, 2021. "Impact of commodity price volatility on external debt: the role of exchange rate regimes," Applied Economics, Taylor & Francis Journals, vol. 53(57), pages 6626-6640, December.
    19. Carlos Caceres & Leandro Medina, 2012. "Measures of Fiscal Risk in Hydrocarbon-Exporting Countries," IMF Working Papers 2012/260, International Monetary Fund.
    20. Samuel Guérineau & Hélène Ehrhart, 2012. "The impact of high and volatile commodity prices on public finances: Evidence from developing countries," Working Papers halshs-00659098, HAL.

    More about this item

    Keywords

    international commodity price; public finances; SVAR panel; Africa;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F10 - International Economics - - Trade - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:pubfin:v:51:y:2023:i:2:p:236-261. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.