A Smooth Ride: Terms of Trade, Volatility and GDP Growth
AbstractInternational evidence indicates that higher terms of trade levels and lower terms of trade volatility contribute to enhanced growth outcomes, especially for commodity-export and developing countries. New Zealand's terms of trade have been high and remarkably stable since the early 1990s compared with past experience. We analyse the proximate reasons behind these high, stable terms of trade and then examine whether this terms of trade behaviour explains growth outcomes since 1960. Attention is paid to growth outcomes over a variety of economic regimes. Approximately half the variance in annual GDP growth over 45 years can be explained by the level and volatility of the terms of trade. The relationship is robust across four economic regimes.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Ministry of Economic Development, New Zealand in its series Occasional Papers with number 06/4.
Length: 38 pages
Date of creation: May 2006
Date of revision:
Terms of trade; export diversification; volatility; GDP growth;
Other versions of this item:
- Grimes, Arthur, 2006. "A smooth ride: Terms of trade, volatility and GDP growth," Journal of Asian Economics, Elsevier, vol. 17(4), pages 583-600, October.
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
- N17 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Africa; Oceania
- O56 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Oceania
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.:
- Bloomfield, Arthur I, 1984. "Effect of Growth on the Terms of Trade: Some Earlier Views," Economica, London School of Economics and Political Science, vol. 51(202), pages 187-93, May.
- Robert A Buckle & David Haugh & Peter Thomson, 2001.
"Calm after the Storm?: Supply-side contributions to New Zealand’s GDP volatility decline,"
Treasury Working Paper Series
01/33, New Zealand Treasury.
- Robert Buckle & David Haugh & Peter Thomson, 2003. "Calm after the storm? Supply-side contributions to New Zealand's GDP volatility decline," New Zealand Economic Papers, Taylor and Francis Journals, vol. 37(2), pages 217-243.
- Mendoza, Enrique G., 1997. "Terms-of-trade uncertainty and economic growth," Journal of Development Economics, Elsevier, vol. 54(2), pages 323-356, December.
- Sebastian Edwards & Eduardo Levy Yeyati, 2003.
"Flexible Exchange Rates as Shock Absorbers,"
NBER Working Papers
9867, National Bureau of Economic Research, Inc.
- Francesco Caselli & James Feyrer, 2005.
"The Marginal Product of Capital,"
NBER Working Papers
11551, National Bureau of Economic Research, Inc.
- Robert J. Barro, 1995.
"Inflation and Economic Growth,"
NBER Working Papers
5326, National Bureau of Economic Research, Inc.
- Wells, Graeme & Evans, Lewis, 1985. "The Impact of Traded Goods Prices on the New Zealand Economy," The Economic Record, The Economic Society of Australia, vol. 61(172), pages 421-35, March.
- Turnovsky, Stephen J. & Chattopadhyay, Pradip, 2003.
"Volatility and growth in developing economies: some numerical results and empirical evidence,"
Journal of International Economics,
Elsevier, vol. 59(2), pages 267-295, March.
- Stephen Turnovsky & Pradip Chattopadhyay, 1998. "Volatility and Growth in Developing Economies: Some Numerical Results and Empirical Evidence," Discussion Papers in Economics at the University of Washington 0055, Department of Economics at the University of Washington.
- Stephen Turnovsky & Pradip Chattopadhyay, 1998. "Volatility and Growth in Developing Economies: Some Numerical Results and Empirical Evidence," Working Papers 0055, University of Washington, Department of Economics.
- Chang-Tai Hsieh & Peter J. Klenow, 2003.
"Relative prices and relative prosperity,"
Federal Reserve Bank of San Francisco, issue Nov.
- Robert A. Buckle & David Haugh & Peter Thomson, 2004. "Markov Switching Models for GDP Growth in a Small Open Economy: The New Zealand Experience," Journal of Business Cycle Measurement and Analysis, OECD Publishing,CIRET, vol. 2004(2), pages 227-257.
- Eaton, Jonathan & Kortum, Samuel, 2001.
"Trade in capital goods,"
European Economic Review,
Elsevier, vol. 45(7), pages 1195-1235.
- Jonathan Eaton & Samuel Kortum, 2004. "Trade in Capital Goods," Levine's Working Paper Archive 228400000000000019, David K. Levine.
- Jonathan Eaton & Samuel Kortum, 2000. "Trade in Capital Goods," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-109, Boston University - Department of Economics.
- Jonathan Eaton & Samuel Kortum, 2001. "Trade in Capital Goods," NBER Working Papers 8070, National Bureau of Economic Research, Inc.
- William Easterly & Michael Kremer & Lant Pritchett & Lawrence H. Summers, 1993.
"Good Policy or Good Luck? Country Growth Performance and Temporary Shocks,"
NBER Working Papers
4474, National Bureau of Economic Research, Inc.
- 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.
- Buckle, Robert A. & Kim, Kunhong & Kirkham, Heather & McLellan, Nathan & Sharma, Jarad, 2007. "A structural VAR business cycle model for a volatile small open economy," Economic Modelling, Elsevier, vol. 24(6), pages 990-1017, November.
- Hock Wong, 2010. "Terms of trade and economic growth in Japan and Korea: an empirical analysis," Empirical Economics, Springer, vol. 38(1), pages 139-158, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Hilary Devine).
If references are entirely missing, you can add them using this form.