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Can globalisation stop the decline in commodities' terms of trade?

  • André Varella Mollick
  • João Ricardo Faria
  • Pedro H. Albuquerque
  • Miguel A. León-Ledesma

In this paper we address the following question: would a fully integrated world economy eliminate the widely reported decline in the terms of trade of primary commodities? We address the question by looking at the terms of trade within the US (a highly integrated economy). Our findings show two results. First, US internal real commodities' terms of trade over the 1947--1998 period experienced slowly declining but significant trends. Second, once we control for the effect of US prices on international terms of trade, we find a long-run relationship between the US and international relative prices. These findings support the view that the decline of commodities' terms of trade bears no relationship with the process of globalisation. This seems to indicate that, if world terms of trade behaved as the US terms of trade, neither increased integration nor protectionist measures would eliminate this trend. Copyright The Author 2008. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.

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Article provided by Oxford University Press in its journal Cambridge Journal of Economics.

Volume (Year): 32 (2008)
Issue (Month): 5 (September)
Pages: 683-701

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Handle: RePEc:oup:cambje:v:32:y:2008:i:5:p:683-701
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