Transformation of macroeconomic policy of the commodity - exporting countries under the conditions of globalization.

Abstract

The dissertation is devoted to research of macroeconomic policy transformation of the commodity exporting countries, which is considered as a basis for theoretical elaboration and development of methodological foundations of stabilization policy in lowincome commodity-rich countries, as well as technological sophistication of their production structure under globalization.

The theoretical and applied dimensions of the globalization processes and the global economy developments have been studied, with a focus upon growing importance of commodity markets. Various aspects of theoretical and applied links between the openness and commodity exports have been analyzed.

Important structural shifts in both global demand and supply of raw commodities have been identified. It has been established that the main challenge for commodityexporting countries is accommodation of the volatility (instability) of world commodity prices, especially under conditions of high openness to capital flows.

The study developed a methodology for economic and statistical analysis of macroeconomic effects from world commodity price shocks for resource-dependent economies, which enabled to identify the nature of commodity price effects on the dynamics of income, investment, private consumption and inflation in both dimensions – levels and price volatility. The dualistic nature of the commodity boom has been identified, as higher world commodity prices stimulate economic growth of either exporting countries or the world economy as a whole, while volatility in price indices has a clear negative impact on majority of macroeconomic indicators, including investments.

A set of instrumental tools for analysis of dominant trends and potential challenges for the world commodity market has been extended, with the phenomenon of financialisation being taken under scrutiny in several aspects: (i) the dependence of commodity prices on the US dollar exchange rate, which may be mistakenly perceived as impact of the stock market indices and interest rates; (ii) the neutrality of the stock prices in respect to the crude oil prices and (iii) a growing interdependence of price dynamics between individual commodity indices.

The paper presents an analytical framework for the study of economic processes in commodity economies, which allows identification and systematization of the links between the dynamics of world commodity prices and economic situation of exporting countries in the presence of contradictory internal and external factors that used to be blamed for higher volatility of the world commodity prices, such as the nature of foreign direct investments, institutional problems, excessive optimism and reinvestment in the commodity sector, deepening of commodity market financing, external imbalances and the spread of populism.

The analytical tools of research of several features of the commodity boom, as instability of expectations, asymmetry of short- and long-term economic growth effects, excessive external borrowing, institutional quality, and also possibility of non-inflationary short-lived overheating followed by a build-up in inflationary. Macroeconomic effects of increasing commodity price volatility combined with vulnerability to unstable short-term capital flows have been investigated. Such a combination implies a reduction in the equilibrium level of external borrowing as a major «safeguard» for chaotic balance-ofpayments reversals and measures aimed at higher domestic savings, which can finance sufficient investments and facilitate successful stabilization policy in low-income commodity-exporting countries.

Using the theoretical framework of the AD-AS model with a «dependent» structure of demand and supply, instrumental tools for stabilisation policy analysis are elaborated. It made it possible to consider several distinct features of flexible exchange rate sys

tem in the commodity economy as a factor of maintaining internal and external equilibrium. Research methodology of the phenomenon of commodity currencies is expanded in several directions, accounting of disadvantages of the exchange rate undervaluation, necessity of price incentives for structural shifts between tradable and nontradable goods, and the impact of dollarization. Endogenization of the exchange rate as a factor behind stability of the commodity-exporting countries in the wake of increasing volatility of world commodity markets under inflation.

The scenario analysis of inflation targeting in commodity economies is elaborated, which acknowledges the increased role of the exchange rate and foreign exchange reserves as factors of higher confidence in the economy and increase of private investments. Both factors make it possible to reduce the time lag between changes in monetary policy and inflation and envisages reduction of macroeconomic risks related to volatility of world commodity prices.

A methodological approach for stabilization policy in a low-income commodity-rich economy is proposed, based on a coherent application of fiscal and monetary policy rules in the flexible exchange rates framework. For commodity exporters, viability of countercyclical fiscal policies has been confirmed as a factor in reducing interest rates, increasing both savings and investments, and improving current account balances. The expediency of an expanded monetary policy rule (taking into account the behaviour of world commodity prices) as a means of improving the effectiveness of a stabilization policy in a low-income commodity economy has been substantiated.

Using the portfolio model with different returns on commodity and non-commodity sectors, the inability of automatic improvement in the structural proportions of the Ukraine’s economy has been proved, provided its present level of structural proportions between the two sectors, commodity and non-commodity (technological), at below the equilibrium level. The expediency of structural shifts in favour of the non-commodity sector by strengthening of the exchange rate, attracting foreign direct investments and implementation of limited state intervention (infrastructure modernization, human resources’ development) is explained. All abovementioned policy moves should alleviated dependence on the world commodity prices volatility, as well as increase the rate of longterm economic growth.

On the basis of proposed index of structural changes, a methodology for the evaluation of systemic functional relationships of the Ukraine’s economy, such as high index of economic complexity, inverse relationship between investments and volatility of commodity prices, but under conditions of the industrial sector resilience to the latter, neutrality of both inflation and private consumption in respect to price volatility), has been developed. In turn, it made it possible to conceptualize the dimensions of macroeconomic policy for transformation of the commodity-export model of Ukraine by an increase in budget revenues, responsible monetary policy, low inflation, gradual reduction of exchange rate undervaluation to 10-20%, freedom of entrepreneurship, tapping of foreign direct investments (including preferences for activities in the non-commodity sector), as well as accelerated harmonization of legislation in accordance with European standards.

Theoretical and applied approaches for assessment of economic freedom as a means of improving structural proportions and stimulating the investment process in an economy with an excessive commodity sector (as in Ukraine) have been formulated in the paper. It enables to determine the guidelines for priority liberalization of the economic environment (freedom of investments, streamlining of government expenditures, freedom of entrepreneurship, protection of property rights), while at the same time avoiding the potential risks of rapid liberalization of the financial market and foreign trade.

It has been empirically proved that Ukrainian export should be reoriented to EU countries, since increasing their share in domestic exports is accompanied by an acceleration of GDP dynamics and, importantly, increasing the share of non-commodity export relative to commodity export, that is, improving the quality structure of foreign trade.