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Terms of Trade in the Medium-run

Author

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  • Vahagn Galstyan

    (Institute for International Integration Studies, Trinity College Dublin)

Abstract

This paper contributes to empirical research on the dynamics of the terms of trade. We start by proposing a method for constructing different measures of the terms of trade. This is achieved by estimating a range of substitution elasticities using a panel data approach and highly disaggregated data on trade flows. Next, various measures of the terms of trade and trade margins are related to productivity and demand proxies. We find that domestic demand side movements are positively related to the terms of trade, while domestic productivity gains result in a deterioration of the terms of trade. Our results suggest that higher relative productivity raises the real component of exports relative to imports along the intensive margin inducing a weakening of the terms of trade.

Suggested Citation

  • Vahagn Galstyan, 2011. "Terms of Trade in the Medium-run," The Institute for International Integration Studies Discussion Paper Series iiisdp382, IIIS.
  • Handle: RePEc:iis:dispap:iiisdp382
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    References listed on IDEAS

    as
    1. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains From Variety," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 541-585.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Terms of trade; Trade margins; International prices;
    All these keywords.

    JEL classification:

    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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    This paper has been announced in the following NEP Reports:

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