Year: 2018
Type: report
Abstract: We examine two key channels through which commodity price super-cycles affect the economy: a wealth channel, through which higher commodity prices increase domestic demand, and a cost channel, through which they induce wage increases.By exploiting regional variation in exposure to commodity price shocks and administrative firm-level data from Brazil, we empirically disentangle these transmission channels.We introduce a dynamic, two-region model with heterogeneous firms and workers to further quantify the mechanisms and evaluate welfare.A counterfactual economy in which commodity booms are purely endowment shocks experiences only 45% of the intersectoral labor reallocation between tradables and nontradables, and 40% of the within-tradables labor reallocation between domestic and exported production.Labor market frictions lead to persistent unemployment as the boom fades, and as a result the welfare gains obtained from a commodity super-cycle are 50% lower relative to those which would be obtained under a fully-flexible labor market.
DOI: 10.3386/w24560
Authors: Felipe Benguria, Felipe Saffie, Sergio Urzúa
Institutions: Boston College, National Bureau of Economic Research, University of Kentucky, University of Illinois Urbana-Champaign, Banco Central de Chile, University of Houston, University of Virginia, University of Rochester, Indiana University, University of Maryland, College Park, Federal Reserve Bank of Dallas, Drexel University
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2800201506