International Financial Volatility and Agricultural Commodity Trade: A Primer

Recent international financial crises (East Asia in 1997, Russia in 1998, Brazil in 1999) and the speed with which they have spread across countries and regions have called into question the very desirability of financial globalization, that is, the opening of balance of payments' capital accounts in both developed and emerging economies since the mid 1980s.1 Calls for a new, global financial architecture have multiplied, and new and old theoretical arguments for and against controlling capital flows (as well as domestic financial markets, especially banks) have been put forward (IMF, Rodrik, Stiglitz). There is little empirical evidence to support the debate over the potential effects of enhanced financial volatility at the sectoral level, and especially on the agricultural economy. Has international financial volatility actually affected real sectoral performance, and if so how? After briefly reviewing literature in this area, this paper introduces the methodology and preliminary results of an on-going research project that addresses that question with reference to agricultural commodity trade. The purpose of the paper is both to generate productive discussion and to motivate similar research in this