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Commodity Prices and the Terms of Trade

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  • Prasad Bidarkota
  • Mario J. Crucini

Abstract

On combining national terms‐of‐trade data for developing countries with world prices of internationally traded primary commodities, it is found that variation in the world prices of three or fewer key exported commodities account for 50% or more of the annual variation in the terms of trade of a typical developing country. A considerable fraction of the variation is specific to a particular commodity and, given that the overall importance of primary commodities differs across developing countries, it is possible to account for much of the heterogeneity across them. It is concluded that commodity price fluctuations should be central features of two related literatures: studies of business cycle transmission across developing and industrialized nations, and empirical work aimed at constructing perpetual claims on developing country incomes as suggested by Shiller in 1995.

Suggested Citation

  • Prasad Bidarkota & Mario J. Crucini, 2000. "Commodity Prices and the Terms of Trade," Review of International Economics, Wiley Blackwell, vol. 8(4), pages 647-666, November.
    • Handle: RePEc:bla:reviec:v:8:y:2000:i:4:p:647-666
    DOI: 10.1111/1467-9396.00248
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