ABSTRACT
Price instability has caused concern because it is believed to raise risks to traders, producers and consumers and contributes to the instability of export earnings, imports, investment and government expenditure. But the evidence on the magnitudes of nominal and real price instability for 18 major commodities for the three decades 1951-60, 1961-70, 1971-80 shows that ranking changed dramatically from one decade to the next. Although price and earnings instability are interrelated and may share common causes it is useful to examine them separately. Despite the lack of a strong cross-country relationship between instability and commodity concentration, we have shown that many of the most unstable countries could actually reduce instability in their total export earnings by diversifying into more stable products. The main argument put forward for the Common Fund was that by providing ready financial assistance, it would encourage the negotiation of new ICAs and the re-negotiation of existing ones.
