Primary products are goods that are available from cultivating raw materials without a manufacturing process. For example oil or wood. Many developing countries have a comparative advantage in producing primary products. This is because many developing countries are rich in resources but poor in capital and education. Therefor they can export primary products to gain revenue. Why this may be good for the short term in the long term this can have some significant constraints to growth of the developing country.
Primary products tend to be very price inelastic in demand and supply. This makes the price of the primary products very volatile especially in the short run. These can be caused by time lags between production decisions and delivery to market. This means any negative demand or supply side shock will result in a price change which is very bad for the the country as it will lead to the suppliers of these products receiving less revenue for primary products with a decrease in price. And as the demand is usually inelastic with primary products with a fall in price demand will also fall. This can limit a countries growth and harshly affect GDP figures.
However the price volatility could also help a country with its growth as if a price was to fluctuate up then the government would be left with greater revenue and as demand is inelastic it would be relatively unchanged with the higher price. This means the countries growth rate will increase with the increased revenue which will go on to raise GDP of the country and the extra money can be used to benefit the whole country by spending more on public benefit systems or building new infrastructure which could create more jobs and help the country grow even more.
Another problem with relying on primary products as a country is Dutch disease. This is when a discovery of a natural resource (primary product) raises the