Harvard Institute forInternational DevelopmentHARVARD UNIVERSITYDevelopment Discussion PapersA Domestic Approach to Export Price StabilizationDavid DaweDevelopment Discussion Paper No. 483March 1994© Copyright 1994 David Daweand President and Fellows of Harvard CollegeDevelopment Discussion Paper no. 483A Domestic Approach to Export Price StabilizationDavid DaweAbstractThe existing literature on commodity price stabilization typically assumes a closed economy andthis implicitly discusses the stabilization of world commodity prices. In contrast, this paperargues that it is more useful to assume an open economy and analyze one possible stabilizationmechanism which can be used by individual countries in order to stabilize the domestic prices ofcommodity exports. This mechanism, effects stabilization by using a moving average of pastworld prices, a method whose ease of implementation may make it appropriate even forpolitically weak states. The effects of such a mechanism on the predictability and variability ofdomestic prices and on the government budget are then assessed quantitatively using historicaldata for 27 primary commodities. These assessments allow a crude cost-benefit analysis of suchstabilization mechanisms which slow that price stabilization can result in gains in economicefficiency.David Dawe is a research associate at the Harvard Institute for International
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