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A Domestic Approach to Export Price Stabilization




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Harvard Institute for International Development HARVARD UNIVERSITY Development Discussion Papers A Domestic Approach to Export Price Stabilization David Dawe Development Discussion Paper No. 483 March 1994 © Copyright 1994 David Dawe and President and Fellows of Harvard College Development Discussion Paper no. 483 A Domestic Approach to Export Price Stabilization David Dawe Abstract The existing literature on commodity price stabilization typically assumes a closed economy and this implicitly discusses the stabilization of world commodity prices. In contrast, this paper argues that it is more useful to assume an open economy and analyze one possible stabilization mechanism which can be used by individual countries in order to stabilize the d mest c prices of commodity exports. This mechanism, effects stabilization by using a moving average of past world prices, a method whose ease of implementation may make it appropriate even for politically weak states. The effects of such a mechanism on the predictability and variability of domestic prices and on the government budget are then assessed quantitatively using historical data for 27 primary commodities. These assessments allow a crude cost-benefit analysis of such stabilization mechanisms which slow that price stabilization can result in gains in economic efficiency. David Dawe is a research associate at the Harvard Institute for International Development






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