Terms Of Trade Evolution, Causes And Effects: Case Study Romania

Terms of trade are meant to show the ratio by which a country is different in the level and dynamics of revenues from the exchange made by different categories of products on the external markets. The level of recorded revenues from the commercialization of products and services varies from country to country, and there is rarely a mutually beneficial exchange situation from these operations. Trade efficiency analysis lies in the determination of the terms of trade. In the current paper, international developments are analyzed based on net terms of trade index used by UNCTAD. Statistical data are provided by the World Bank, where export and import price index and the volume of imports and exports by countries were considered. The classification of the countries has been done according to the geographical orientation and based on the purchasing power parity, thus creating two tables, the first table highlighting seven regions, and the second table with seven categories of states including OPEC and non-OPEC members. The terms of trade evolution are influenced by certain important factors in the production process of goods and services. Some of these factors are mentioned: labour productivity; changes in commodity prices; yet, only the last factor is examined in this paper. Based on World Bank commodity price data, the evolution of major energy inputs such as crude oil, gas, coal, and major industrial raw materials such as aluminium, copper, lead, nickel, tin, zinc, silver, gold, platinum and iron was analysed and interpreted. For Romania, the data on terms of trade evolution shows a dramatic situation. If terms of trade development presented a cyclical evolution, the economy as a whole would send an optimistic message. In contrast, the data presented in the following paper will show that our country has registered continuous depreciation of the terms of trade ratio, with a direct impact on external trade balance deficits, a rising external debt and a declining purchasing power for the population. The conclusions address some of the remedies that our country needs in order to improve.