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Past, Present and Future Developments in New Zealand’s Terms of Trade

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Author Info
Philip Borkin () (The Treasury)
Abstract

This paper looks at the importance of the terms of trade for the New Zealand economy by examining the impact of changes in the trend and volatility of the terms of trade on economic growth. It is found that the volatility in the terms of trade has had a negative impact on New Zealand’s economic growth between 1950 and 2005. However, it is found that rather than the level of the terms of trade having an impact on growth, it is the level of export prices that have had a significant positive effect with the level of import prices having an insignificant impact. This paper also examines the historical patterns in the trend and volatility to see if and why they have changed over time. As New Zealand is largely an exporter of primary commodities and importer of manufactures, the Prebisch- Singer hypothesis suggests that its terms of trade should have declined over time. However, this paper finds that the terms of trade has not declined and in fact, is showing an increasing trend since 1974. It is also found that the volatility in the terms of trade has declined over time. Using this evidence as well as other issues such as world trade reform and China, this paper draws conclusions as to future movements of New Zealand’s terms of trade as well as any possible economic growth implications.

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File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2006/06-09/twp06-09.pdf
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Publisher Info
Paper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 06/09.

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Length: 43
Date of creation: Jul 2006
Date of revision:
Handle: RePEc:nzt:nztwps:06/09

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Postal: New Zealand Treasury, PO Box 3724, Wellington, New Zealand
Phone: +64-4-472 2733
Fax: +64-4-473 0982
Web page: http://www.treasury.govt.nz
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Related research
Keywords: Terms of trade Commodity Prices New Zealand Economic Growth Prebisch-Singer Hypothesis

Find related papers by JEL classification:
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
F10 - International Economics - - Trade - - - General
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Anderson, Kym & Martin, Will, 2005. "Agricultural trade reform and the Doha development agenda," Policy Research Working Paper Series 3607, The World Bank. [Downloadable!]
    Other versions:
  2. Paul Cashin & Hong Liang & C. John McDermott, 2000. "How Persistent Are Shocks to World Commodity Prices?," IMF Staff Papers, Palgrave Macmillan Journals, vol. 47(2), pages 2. [Downloadable!] (restricted)
    Other versions:
  3. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November. [Downloadable!] (restricted)
    Other versions:
  4. Easterly, William & Kremer, Michael & Pritchett, Lant & Summers, Lawrence H., 1993. "Good policy or good luck?: Country growth performance and temporary shocks," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 459-483, December. [Downloadable!] (restricted)
    Other versions:
  5. Bleaney, Michael F & Greenaway, David, 1993. "Long-Run Trends in the Relative Price of Primary Commodities and in the Terms of Trade of Developing Countries," Oxford Economic Papers, Oxford University Press, vol. 45(3), pages 349-63, July. [Downloadable!] (restricted)
  6. Paul Cashin & C John McDermott & Alasdair Scott, 1999. "Booms and slumps in world commodity prices," Reserve Bank of New Zealand Discussion Paper Series G99/8, Reserve Bank of New Zealand. [Downloadable!]
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  7. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    Other versions:
  8. Robert A Buckle & Kunhong Kim & Heather Kirkham & Nathan McLellan & Jared Sharma, 2002. "A structural VAR model of the New Zealand business cycle," Treasury Working Paper Series 02/26, New Zealand Treasury. [Downloadable!]
  9. Paul Cashin & C. John McDermott, 2001. "The Long-Run Behavior of Commodity Prices: Small Trends and Big Variability," IMF Working Papers 01/68, International Monetary Fund. [Downloadable!]
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