Finally, studies examining the causes and the effects of high price volatility in natural resource markets have emphasized the two-way relationship between volatility and trade. On the one hand, trade allows for a more efficient diversification of input sources, thus reducing
the sensitivity of natural resource prices to commodity specific shocks. On the other hand, volatility may also adversely influence countries’ openness to trade (triggering export-restricting policy responses) or how they trade (e.g. organized exchanges versus bilateral
long-term contracts). The literature also stresses the important role that commodity-based financial instruments may have in providing a hedge mechanism against the risk of volatility or in contributing to sudden price swings via herding effects. One weakness of the literature is that it focuses mainly on oil price movements. While some of the insights may be applicable to other commodities, the absence of studies on the causes and consequences of volatility in other resource sectors is regrettable.