Commodity Price Shocks, Factor Utilization, and Productivity Dynamics

I investigate the importance of commodity price shocks on aggregate productivity dynamics through the variable utilization of primary factors. I exploit sectoral variation in product tradability and cost exposure to the copper industry to characterize the within-plant responses of manufacturing Chilean firms to copper price shocks. I find that, when copper prices increase, establishments selling non-tradables display higher RTFP than similar establishments selling tradables. At the same time, plants more cost-exposed to the copper industry display lower RTFP. I develop a multi-sector small open economy framework featuring frictions to primary input management and variable factor utilization. I find that variable factor utilization can generate a positive and strong association between copper price shocks and measured aggregate TFP, as is observed in Chilean data. The model induced volatility in aggregate TFP is larger than the actual one, which points to a negative correlation between utilization-adjusted aggregate TFP and copper price shocks.