terms of trade


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terms of trade

the changing overall ratio of the prices (or VALUES) a country must pay for the goods and services it imports and the prices (or values) it is able to obtain for the goods and services it exports. This is usually measured by a quotient obtained by dividing an index number of the prices of goods and services sold by an index number of those obtained. In recent decades, a deterioration in the terms of trade between developed and less developed countries has posed a persistent problem for the latter, brought about by, e.g.:
  1. the substitution of agricultural products by synthetic, industrially produced replacements; and
  2. the ‘income elasticity’ (see ELASTICITY OF SUPPLY AND DEMAND) for foodstuffs (i.e. people in developed societies can eat only so much food). Efforts to overcome the problem of adverse terms of trade for many of the goods produced by poorer countries include the diversification of their pattern of production for international markets, but this, if it can be achieved at all, is a long-term process in which some developing nations (e.g. those richer in natural resources, and achieving relative political stability) are more successful than others. See also INTERNATIONAL TRADE, UNEQUAL EXCHANGE.
References in periodicals archive ?
Not many studies investigate the link between terms of trade and trade balance for the emerging economies of Europe.
Pages 56-57 of my paper carefully explain the cause of the terms of trade result.
The surplus in the balance of trade will decrease in 2005 and 2006 as the terms of trade deteriorate, but then increase in 2007 as both the terms of trade and net exports improve.
Countries with lower entry and differentiation costs also have higher GDP, but supply a larger array of goods at improved terms of trade. The sign of the international welfare spillovers depends on terms of trade, but also on consumers' taste for variety.
During the period January-August 2004 the terms of trade weakened by 4.2% year-on-year.
Unless the United States assumes a leadership role, Saudi Arabia will continue to dictate the terms of trade between oil and grain.
In the second, Ester Faia and Tommaso Monacelli consider optimal monetary policy in a world in which policymakers in each country have an incentive to improve the welfare of domestic residents by manipulating the terms of trade in their own favor.
(1) [h.sub.t] = [h.sub.t-1] + [[epsilon].sup.h.sub.t] Evolution of terms of trade
However, in terms of trade, Asia as a region exports to and imports more from Japan than it does with the US.
The improvement in the terms of trade has led to a spectacular increase in real value added.
Manufacturing companies in the Midlands are among firms which may be getting a raw deal in terms of trade because they are outside the euro zone.
If the governments were to liberalize reciprocally, however, then the terms of trade could be preserved, and the impediment to liberalization thereby would be removed.