Instability in export earnings

Export earnings instability in developing countries is the result of a number of factors. First, many developing countries have specialized on the export of primary commodities, which are peculiarly susceptible to shifts in supply and demand, as well as being more price inelastic than are, for example, manufactured goods. The transmission of instability of demand for developing country exports through the business cycles in the industrialized countries or fluctuations in the quantities supplied for export may thus be one potential source of instability in export revenues. Second, the exports of many developing countries are not only concentrated by sector (commodities) but also geographically, with obvious implications when linked to factors affecting demand in the importing countries. Third, the markets for products in which developing countries have specialized are often characterized by speculation on the one hand and oligopoly on the other. Instability affects development through such variables as imports, savings, investment, employment, government revenues and private income.