Consider the following statements with reference to commodity-dependent countries:
1. A country is considered commodity-dependent when its merchandise exports are heavily concentrated on primary commodities.
2. Commodity dependence makes countries more resilient to global financial shocks due to strong capital inflows.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Explanation Statement 1 is correct: A country is dependent on the export of commodities (or “commodity-dependent”) when its merchandise exports are heavily concentrated on primary commodities.The source of commodity dependence can be linked to a country’s persistent or structural conditions, such as its resource endowment and factor composition, institutional framework, geographic situation, history among other factors. UNCTAD member States are considered to be commodity dependent if more than 60 per cent of their merchandise export value comes from commodities.
Statement 2 is not correct: Commodity-dependent countries (CDCs), and in particular commodity-dependent developing countries (CDDCs), are vulnerable to negative shocks that affect the quantities and/or the prices of the commodities exported. Commodity dependence can negatively impact CDCs, and in particular CDDCs, because they are exposed to the sharp reduction or even reversal of capital inflows. Example:Dependence can leave an economy highly exposed to shocks, such as the COVID-19 pandemic, and price swings in international markets.
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