The Price Is Not Always Right: On the Impacts of (Commodity) Prices on Households (and Countries)

Produced by: 
The World Bank
Available from: 
May 2014
Paper author(s): 
Daniel Lederman (The World Bank)
Guido Porto (Universidad de La Plata)
Financial Economics
Macroeconomics - Economic growth - Monetary Policy

This paper provides an overview of the impact of once-and-for-all changes in commodity prices and other prices on household welfare. It begins with a collection of stylized facts related to commodities based on household survey data from Latin America and Africa. The data uncover strong commodity dependence in both continents: households typically allocate a large fraction of their budget to commodities and they often depend on commodities to earn their income. This income and expenditure dependency suggests sizable impacts and adjustments following commodity-price shocks. The paper explores these effects with a review of the literature. It studies consumption and income responses, labor-market responses, and spillovers across sectors. It ends up providing evidence on the relative magnitudes of various mechanisms through which commodity prices affect household (and national) welfare in developing economies.


Research section: 
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