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A smooth ride: Terms of trade, volatility and GDP growth

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  • Grimes, Arthur

Abstract

International 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.
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Suggested Citation

  • 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.
  • Handle: RePEc:eee:asieco:v:17:y:2006:i:4:p:583-600
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    Cited by:

    1. Piotr Misztal, 2012. "Terms of Trade and Economic Growth in Poland in the period 1980-2009," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 15(45), pages 51-67, December.
    2. Dan Andrews & Daniel Rees, 2009. "Macroeconomic Volatility and Terms of Trade Shocks," RBA Research Discussion Papers rdp2009-05, Reserve Bank of Australia.
    3. repec:taf:nzecpp:v:52:y:2018:i:1:p:91-107 is not listed on IDEAS
    4. Thanh, Su Dinh, 2015. "Threshold effects of infl ation on growth in the ASEAN-5 countries: A Panel Smooth Transition Regression approach," Journal of Economics, Finance and Administrative Science, Universidad ESAN, vol. 20(38), pages 41-48.
    5. 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.
    6. 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.
    7. Fabling, Richard & Sanderson, Lynda, 2008. "Firm Level Patterns in Merchandise Trade," Occasional Papers 08/3, Ministry of Economic Development, New Zealand.
    8. Arthur Grimes & Sean Hyland, 2013. "Passing the Buck: Impacts of Commodity Price Shocks on Local Outcomes," Working Papers 13_10, Motu Economic and Public Policy Research.
    9. Daan Steenkamp, 2014. "How volatile are New Zealand’s terms of trade? An international comparison," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 77, pages 3-14, June.

    More about this item

    JEL classification:

    • 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, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Oceania

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