Diversification and Stabilization in a Resource-Exporting Country

The lion’s share of foreign exchange is earned by exporting only one or two primary commodities in a group of countries with small and open economies.1 While some of them find structural adjustment to an appreciating real exchange rate — brought about by the exploitation of newly-found natural resources or by a secular commodity price hike — painful,2 the “commodity problem” of old non-oil exporting countries within the group is rather related to instability of world commodity prices and Uncertainty about future price trends.3 Unless caused by supply shifts of the country in question, fluctuating world commodity prices get transmitted into fluctuating export earnings. These are a major potential source for macroeconomic disturbances in the open economy.