DP9582 Distributional Impact of Commodity Price Shocks: Australia over a Century

Author(s): Sambit Bhattacharyya, Jeffrey G Williamson
Publication Date: August 2013
Keyword(s): Australia, commodity exporters, commodity price shocks, income inequality
JEL(s): F14, F43, N17, O13
Programme Areas: International Trade and Regional Economics, Economic History
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=9582

This paper explores the distributional impact of commodity price shocks over the both the short and very long run. Using a GARCH model, we find that Australia experienced more volatility than many commodity exporting poor countries between 1865 and 2007. A single equation error correction model suggests that commodity price shocks increase the income share of the top 1, 0.05, and 0.01 percent in the short run. The very top end of the income distribution benefits from commodity booms disproportionately more than the rest of society. The short run effect is mainly driven by wool and mining and not agricultural commodities. A sustained increase in the price of renewables (wool) reduces inequality whereas the same for non-renewable resources (minerals) increases inequality. We expect that the initial distribution of land and mineral resources explains the asymmetric result.