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Terms of Trade and Current Account Dynamics: A Methodological Critique

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  • Galor, Oded
  • Lin, Shoukang

Abstract

This paper suggests that the recent intertemporal studies concerning the implications of terms-of-trade deterioration on the current account of a small open economy may suffer from significant methodological deficiencies. The study demonstrates that, while the assumption of a small open economy represents a legitimate modeling simplification, the analysis of the impact of perturbation of the terms of trade on the current account of this small open economy is methodologically erroneous. In particular, the paper demonstrates that a given pattern of terms-of-trade deterioration may be associated with opposing evolutionary patterns of the current account of this small economy. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Galor, Oded & Lin, Shoukang, 1994. "Terms of Trade and Current Account Dynamics: A Methodological Critique," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(4), pages 1001-1014, November.
  • Handle: RePEc:ier:iecrev:v:35:y:1994:i:4:p:1001-14
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    Cited by:

    1. Frédéric Gannon & Gilles Le Garrec & Vincent Touze, 2016. "Aging, international capital flows and long run convergence," Sciences Po publications 2016-09, Sciences Po.
    2. An-Chi Tung & Henry Wan, Jr., 2009. "Comparative Advantages and Possible Coordination Failure: An Explanatory Note," Review of International Economics, Wiley Blackwell, vol. 17(SI), pages 280-291, May.
    3. Aquino, Juan Carlos & Espino, Freddy, 2013. "Terms of Trade and Current Account Fluctuations: a Vector Autoregression Approach," Working Papers 2013-008, Banco Central de Reserva del Perú.
    4. Luis N. Lanteri, 2015. "Efecto Harberger-Laursen-Metzler. Evidencia para Argentina (1986-2014)," Economic Analysis Working Papers (2002-2010). Atlantic Review of Economics (2011-2016), Colexio de Economistas de A Coruña, Spain and Fundación Una Galicia Moderna, vol. 1, pages 1-1, December.
    5. Palmisani, Cesare, 2008. "Una rassegna su alcuni modelli di crescita economica tipo Solow con dinamica caotica," MPRA Paper 9506, University Library of Munich, Germany.
    6. Serdar Sayan, 2002. "Dynamic Heckscher-Ohlin Results from a 2x2x2x2 Overlapping Generations Model with Unequal Population Growth Rates," Working Papers 0201, Department of Economics, Bilkent University.
    7. Sayan, Serdar, 2005. "Heckscher-Ohlin revisited: implications of differential population dynamics for trade within an overlapping generations framework," Journal of Economic Dynamics and Control, Elsevier, vol. 29(9), pages 1471-1493, September.

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