Quantifying the Impact of Commodity Price Fluctuations on Commodity-Reliant Economies

Commodities underpin global trade, fueling economies as essential inputs for industries ranging from energy systems and agriculture to semiconductors and renewable technologies. Price volatility poses acute risks for commodity-dependent economies-nations deriving over 60% of export revenue from a single resource-exacerbating fiscal instability and socio-political fragility. This thesis examines how shocks in oil, copper, and lithium prices-driven by their roles in AI, electric vehicles, and energy transitions-impact economic growth in vulnerable, export-concentrated countries. To project future dynamics, Monte Carlo simulations are integrated with stochastic differential equation (SDE) models-combining geometric Brownian motion and mean-reverting jump diffusion-to analyze historical price trends and simulate probabilistic forecasts under geopolitical disruptions, technological shifts, and climate-related supply constraints. Results reveal asymmetric economic impacts, with resource-dependent nations disproportionately exposed to risks from AI-driven demand surges and decarbonization pressures. The study underscores the urgency of diversification, stabilization funds, and adaptive policies to mitigate volatility. By linking commodity-specific microdynamics with macroeconomic trends, the research demonstrates how resource wealth can transition from a vulnerability to a sustainable growth catalyst. Methodologically, it advances frameworks that leverage Monte Carlo techniques to quantify non-linear market behaviors and stochastic uncertainties, offering policymakers tools to simulate price trajectories and manage systemic risks. Findings advocate for scenario-based modeling to enhance resilience amid escalating volatility, balancing global industrial demands with equitable development. Ultimately, this work equips stakeholders to harness data-driven insights and forward-looking simulations, transforming commodity dependencies into opportunities for socio-economic stability.