Terms of Trade Volatility, Government Spending Cyclicality, and Economic Growth

This paper presents estimates of the effects that terms of trade volatility has on real GDP
per capita growth. Based on 5-year non-overlapping panel data comprising 175
countries during 1980-2010, the paper finds that terms of trade volatility has significant
adverse effects on economic growth in countries with procyclical government spending;
in countries where government spending is countercyclical terms of trade volatility has
no significant effect on growth. Conditional on the mediating role of government
spending cyclicality, the GDP share of domestic credit to the private sector has no
significant effect on the relationship between growth and terms of trade volatility.