Commodity Dependence

In South America's Atacama Desert, rain almost never falls. Thanks to that extreme dryness, water-soluble nitrates were never washed away and remained preserved in the ground. Spread on farmland, they served as fertilizer; shipped to munitions factories, they became the raw material for explosives. People called it Chilean saltpeter.

At one point, a huge share of the world's nitrogen came from this single desert. Towns built around refining saltpeter sprouted across the sands, and ports and railways were laid down just to haul this one product away. Around that era, saltpeter was the largest single item on Chile's export ledger. There was only one thing to sell, and only one industry providing jobs.

How that export line disappeared is what makes the story so cautionary. Prices didn't just take a temporary dip. Instead, once synthetic nitrogen fixation from the air was industrialized, the world simply no longer needed to dig it out of a distant desert. Soon after, the Great Depression struck. Ownership changed and facilities were modernized, leading to brief rebounds, but exports never reclaimed their former glory. Most saltpeter works across the desert closed down. Humberstone and Santa Laura, now preserved as UNESCO World Heritage sites, shut their doors in 1960. Today, only a handful of sites like María Elena continue to operate.

This highlights the hidden danger of commodity dependence. When prices drop, they can eventually bounce back. But when the underlying reason people buy a resource changes, that export line never returns to what it was.

Let's trace step by step why relying on a single line is so precarious. First, raw commodity prices swing wildly. Setting up mines, wells, or plantations takes years, so any temporary glut or shortage hits prices almost immediately.

In a country where that single commodity makes up most of what goes out the door, inbound cash flows follow those price swings directly. Tax revenues track those exports, and public budgets are built on those taxes. As a result, the money available for schools, hospitals, and roads can swing drastically year to year. That makes long-term planning almost impossible.

This is why we need to distinguish commodity dependence from commodity price cycles. A commodity cycle is how prices rise and fall over time, while commodity dependence is what a country's exports actually consist of. One describes a market reality, while the other describes the vulnerability of a nation that staked its livelihood on that market.

It is also measured differently from trade dependence. Trade dependence measures total trade relative to gross domestic product (GDP), whereas commodity dependence measures commodities as a share of merchandise exports. How much a country trades and how concentrated its exports are are two entirely different questions.

The concept most frequently confused with commodity dependence is the resource curse. Commodity dependence is a structural condition describing what fills a country's export ledger, whereas the resource curse is the observed phenomenon where resource-rich nations often suffer from slower economic growth. You can measure the first simply by looking at export data; the second is an outcome visible only over decades.

Dependence, therefore, is not an automatic curse. Some nations blessed with abundant resources have sustained strong economic growth. Norway and Botswana are classic examples often cited together. Economists broadly agree that what determines the outcome is not how much resource wealth a country has, but the strength of the institutions that collect and spend that revenue.

When quoting figures, it is crucial to state the time frame and criteria. UNCTAD reported that between 2021 and 2023, 95 out of 143 developing economies were commodity-dependent. Change the reporting agency or the period measured, and the numbers change too.

One last thing to remember: commodity dependence is not a badge of laziness. Selling what is abundant and sells well is a natural economic choice. The danger arises when a country misses the window to cultivate other lines of business while that main line is thriving.