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Is commodity dependence curse or blessing?

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Global commodity markets have historically been the main link between Latin America and the Caribbean and the rest of the world.  The settlement of the New World by Europeans was a migration driven largely by the search for commodities.
Columbus’s voyage was an attempt to find an easy route to the spice markets of the East Indies. After tasting a native spice (called ají in the Caribbean language and chili in Náhuatl), Columbus believed that he had found one of the spices he was looking for.
In reality, the spice he had ‘’discovered’’ was botanically totally unrelated to the pepper of the East Indies, but the nomenclatural ambiguity from this initial confusion endures to this day in the name ‘’chili pepper’’as stated in From Silver to Cocaine: Latin American Commodity Chains and the Building of the World Economy, 1500–2000

It subsequently became clear that Columbus had not found a passage to the Spice Islands. And while the chili pepper never became economically important in the region, other commodities did. A primary motivation for the exploration of much of the Latin American region was the search for silver and gold. Though never quite living up to the legendary El Dorado sought by conquistadores and their sponsors, Latin America produced some 80 percent of the world’s silver in the 16th–19th centuries, fueling the monetary systems of Europe, China, and India.

And throughout the region’s history, economies have waxed and waned on the strength and weakness of commodity markets.

For Latin America and the Caribbean, the booming prices of commodity exports since 2002 has brought with it a swelling media and academic interest in whether a concentration in commodity production is gloomy harbinger for the region’s future development prospects.

Over the past two years, the Latin American and Caribbean region of the World Bank has been working on a research program designed precisely to look at this question.

The findings of this research effort are summarized in the 2010 regional flagship study “Natural Resources in Latin America and the Caribbean: Beyond Booms and Busts?”

On September 13, 2010, we plan to launch the study simultaneously at the 14th annual Miami Herald Americas Conference, co-organized by the World Bank, and in São Paulo, Brazil.

The report is truly a collective effort, having been built on a sizeable collection of background papers by economists and political scientists within and outside the World Bank.

The report investigates three broad sets of issues:

1. Does commodity dependence really affect long-term development prospects by hampering innovation or worsening public institutions? Are these potentially negative feedback effects immutable; if not, what policies or institutional reforms are needed to ameliorate the negative consequences?

2. Does commodity dependence really induce high macroeconomic volatility and thereby hamper growth?

If so, what policy reforms can be implemented to reduce this volatility?

3. Under what circumstances does commodity production lead to adverse environmental and social impacts, and what kinds of policy reforms will lead to more sustainable practices?

We have made the background papers and data available at this website.

Here, we welcome not only reactions to the report, but also contributions on the general question of commodities and development in Latin America and the Caribbean.


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