The post-2000 commodity super cycle the world recently witnessed is not an isolated phenomenon. Over the past century, three other super cycles (from trough to trough) have taken place in 1894-1932, 1932-71, and 1971-99. The World Bank (2015) argues that these long and protracted commodity price upswings were associated with the rapid industrialization and urbanization of a group of dynamic economies-U.S. growth in the late 19th and early 20th centuries, the post-World War II reconstruction of Europe, and the emergence of Japan as a major economic player. As the income per capita levels of these countries increase, their commodity consumption follows an S-curve pattern.1 Once this commodity consumption stabilizes, a period of much lower commodity prices follows (Jacks 2013).
Commodity price boom-bust cycles take a toll on countries, especially developing and resource-rich countries. Resource-abundant countries in Sub-Saharan Africa are no exception to such economic upheavals owing to super cycles. To examine the behavior of economic performance after a commodity plunge, periods of sharp decline in commodity prices are identified. Specifically, the criteria identify episodes where the annual Energy Price Index declines by more than 25 percent, namely, 1986, 1998, 2009, and 2014.2 This annex examines the behavior of growth per worker as well as the sources of growth-capital accumulation and total factor productivity (TFP)-after a plunge in commodity prices.3 Given that some of the effects of the 2014 plunge are still evolving, inference from previous commodity price busts is used to extract some lessons for the current episode.4
Figure 1A.1 depicts the behavior of commodity prices over a window of time starting from the year before the bust year (labeled T). International prices of metals and mineral ores as well as agricultural goods also experienced a decline-although not as pronounced as that of energy commodities. Precious metals, typically regarded as safe-haven commodities, experienced an increase in prices. Energy prices did not fully recover to pre-crisis levels in the span of six years, while other commodities recovered relatively rapidly.
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1 Commodity consumption tends to stabilize at very high levels after rapid and accelerating growth (Roache 2012).
2 Energy price data were extracted from the World Bank Pink Sheet. The Energy Price Index is comprised of three commodities: coal, crude oil, and natural gas, and their weights are 4.7, 84.6, and 10.8, respectively.
3 The data on real GDP, capital stock, employment, and TFP were obtained from Penn World Tables 9.0 (Feenstra, Inklaar, and Timmer 2015).
4 Not all commodity price busts are alike. The plunge in 1986 was driven by oil supply factors, whereas those in 1998 and 2009 were demand driven.