After the Boom: Which Emerging Markets Benefited most from the Commodities Boom and Why

Commodity prices have declined notably over the last couple of years. Many countries that rely on exporting commodities have been affected by this price drop. This paper identifies and analyzes price cycles in different commodity classes (agriculture, energy and metals) and determines which emerging market countries are the most exposed to the current commodities price slump. It further uses bivariate regression analysis to study the link between the commodity prices and various indicators of government financial wellness.

Based on available metrics, the team found that oil-exporting countries have the most concentrated exposure to commodity price cycles, while exporters of other commodities have a more diversified exposure and thus experience a more muted negative impact. Further, the team noted that the magnitude of the drop in oil prices in the current cycle has been greater than for other commodities. Consequently, the team observed a positive relationship between government primary balance and oil export exposure of the most exposed countries during commodity up-cycles and a negative relationship between government primary balance and oil export exposure of the most exposed countries during commodity down-cycles. Although the team did not observe any statistically significant correlation between government finance metrics and export exposure to other commodities, a number of the relationships are suggestive, and where appropriate the team offered hypotheses regarding the driving factors between the apparent presence or absence of association. Additionally, the team proposed opportunities for further research on this topic.

Keywords: Commodity price cycles, commodity exports, sovereign credit