Terms of Trade in the Medium-run
AbstractThis paper contributes to empirical research on the dynamics of the terms of trade. We start by proposing a method for constructing different measures of the terms of trade. This is achieved by estimating a range of substitution elasticities using a panel data approach and highly disaggregated data on trade flows. Next, various measures of the terms of trade and trade margins are related to productivity and demand proxies. We find that domestic demand side movements are positively related to the terms of trade, while domestic productivity gains result in a deterioration of the terms of trade. Our results suggest that higher relative productivity raises the real component of exports relative to imports along the intensive margin inducing a weakening of the terms of trade.
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Bibliographic InfoPaper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp382.
Length: 28 pages
Date of creation: Oct 2011
Date of revision:
Terms of trade; Trade margins; International prices;
Find related papers by JEL classification:
- F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-28 (All new papers)
- NEP-INT-2011-11-28 (International Trade)
- NEP-OPM-2011-11-28 (Open Economy Macroeconomic)
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