1 The Problems of Commodity Dependence (2024)

FAQs

What are the problems with commodity dependence? ›

It affects economic performance and exposes countries to shocks. Commodity-dependent countries often grapple with issues like slow productivity, income volatility, overvalued exchange rates, and increased economic and political instability.

Commodity dependence: When peripheral economies rely too heavily on the export of raw materials, which places them on unequal terms of exchange with more-developed countries that export higher-value goods.

What is commodity dependence? When over 60% of a country's exports are made of commodities. Underdevelopment and dependence of developing countries are a necessary step for growth in wealthier nations. This is the definition of dependency theory.

Foreign dependency generally fosters underdevelopment in the dependent country; a country's adoption of policies tailored to the interests of a stronger country may inhibit the weaker country's domestic growth, speed environmental destruction, or create temporary growth that precludes sustainable development and ...

The challenge of commodity price volatility for commodity-exporting economies. Large shifts in the demand and supply of commodities, along with price booms and busts and differing long term trends, pose challenges for commodity-exporting emerging market and developing economies (EMDEs).

Answer & Explanation

Commodity dependence in a country refers to a heavy reliance on a few primary goods for its economic output and export earnings.

Among the measures being undertaken to mitigate commodity dependence and support economic diversification are promoting value addition and encouraging partnerships for technology transfer and digital connectivity.

Commodities are raw materials used to manufacture consumer products. They are inputs in the production of other goods and services, rather than finished goods sold to consumers. In commerce, commodities are basic resources that are interchangeable with other goods of the same type.

Factors affecting supply include price of goods, price of related goods, production conditions, future expectations, input costs, number of suppliers, and government policy.

One's psychological state feeds into their emotions, and for that reason, many of the psychological effects of dependency are the cause of a poor or unstable emotional state. Some of the most consistent psychological effects that are induced by substance dependency are: Depression when the drug is unavailable.

What are the risks of economic dependence? ›

Economic dependence increases business risk and decreases business value. Potential purchasers of a business are interested in the extent to which: i) sales are derived from one customer; ii) raw materials are obtained from one supplier; and iii) a key aspect of operations is dependent on one employee.

Disadvantages of Economic interdependence include the exchange rate fluctuations, higher import costs, risks associated with depending upon a sole supplier, etc.

One of the major problems with commodity money was quality. Individuals tended to use or sell their best products while their poorest products would be offered as commodity money. Additionally, even good quality commodities would deteriorate if retained too long.

The downsides to commodity investing are a lack of income, high volatility, and external risks. Lack of income: Investing in commodities doesn't generate yield income like a bond or a dividend-paying stock. All of the return on a commodities investment depends on correctly predicting the price movements.

Commodity risk is the threat of price fluctuations of a raw material. For commodity producers, a decrease in raw material prices is going to hurt, because they're going to receive less money for the raw material that they're providing.

Challenges: Lack of policies to guide commodity selection and ordering at the facility level. This may lead to duplication (stocking same items), revenue wastage through expiries and mismanagement of clients services.