The Effects of Collective Devaluation on Commodity Prices and Exports

Abstract

Because measures to stimulate export production are often part of economic adjustment programs, the possible repercussions in particular commodity markets of collective actions by producers to encourage exports merit study. A simplified model is developed and used to simulate supply-side policies in the world market for a primary commodity to explore the policies' effects on prices, volumes, and export receipts over a decade. Although the potential for adverse effects exists, this finding is not an argument against devaluation, since the beneficial effects of such a policy in other areas might outweigh the short-run effect on major commodity exports.