1945

Indirect effects of the recent commodity boom: Structural and financial impacts

The recent commodity boom had both positive and negative indirect effects on commodity-dependent developing countries. On the positive side, it could be argued that the boom attracted FDI and other capital inflows, which spilled over into economic diversification and domestic financial development. On the negative side, the rising food and fuel prices may have inhibited diversification. The boom may also have increased the volatility of commodity prices by attracting speculative investment. This chapter shows that the imperative to “build financial capital” identified by Kregel (2004) – i.e. to safeguard stability in international financial relations – meant that revenues from commodity exports (along with other inflows) were mainly used by countries to strengthen their international financial positions through the accumulation of stocks of foreign assets and a reduction of their foreign liabilities, notably debt.

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