Second, we study the pattern of exports of Sub-Saharan countries picking the commodity prices that should be relevant to explain output volatility. The evidence provided here shows that the concordance between price cycles and gross domestic product (GDP) cycles is relatively low. When defining a contractionary cycle of commodity prices as a 10% accumulated drop in the real price, we found high concordance between commodity price plunges and recessionary phases of the business cycle for oil and metal exporter countries such as those within the SSA group. Little evidence was found for agricultural product exporters.
Third, we construct a commodity price index for Sub-Saharan economies using the methodology of Spatafora and Tytell (2009). An econometric analysis shows that an increase in volatility of commodity terms of trade by 8 percentage points will increase the volatility of output by 2.9 percentage points for those countries who extensively export natural resources. Furthermore, the results also indicate that the volatility of fiscal policy (as defined by Fatas and Mihov, 2006) and institutional quality are important in explaining the volatility of GDP growth rates in the SSA region.