240 years of Swedish terms of trade – structure, volatility, and connection to economic growth

In this paper we present new foreign trade- and price data to analyze Swedish terms of trade in the very long run, from 1780 to 2018. We examine what influenced the trend in the terms of trade in the long run, particularly in how it related to the general trade structure. We also analyze the volatility of the terms of trade, and discuss how it might have affected economic growth in Sweden. The index improved slowly but substantially over the century from 1850 to 1950, which was likely connected to another poignant trend, a steadily increasing share of manufactures and finished goods in the export basket. In comparative perspective, Sweden had more industrial exports and lower export concentration than most of the rest of the European periphery, as well as much lower terms of trade volatility. We find that the growth trend and low volatility of Swedish terms of trade was positively connected with economic growth, but only really so from about 1850 to 1913. During this period the development of the terms of trade was particularly connected to increasing investment in new industries. The years from 1914 to 1960 were on the other hand characterized by high volatility in the terms of trade, and was still connected to high growth rates, such as during the interwar period. Hence, we conclude that while low volatility was connected to the onset of Swedish industrialization, it was also possible to maintain high growth rates during periods of high terms of trade volatility.