Deterioration In Terms Of Trade Research Articles

RCEP, global value chains and welfare effects: a quantitative analysis based on the distinction between intermediates and final goods

ABSTRACT We quantify the trade and welfare effects of RCEP. Using a quantitative multi-country and multi-sector trade model that distinguishes key characteristics between intermediates and final goods, we illustrate the heterogeneous impacts of RCEP on trade and welfare. RCEP has trade creation effects within members but has trade diversion effects for non-members. There are substantial welfare gains within RCEP, but the decomposition results indicate that the sources of welfare gains differ, with China and ASEAN countries mainly originating from growth in the volume of trade, but at the cost of the deterioration in terms of trade. Trade liberalization in service also contributes to welfare gains, mainly from intermediates trade. India’s accession to RCEP improves the welfare of itself and its members, while its terms of trade deteriorate. We also find that with distinctions between intermediates and final goods, the heterogeneous effects of the two can be captured. Moreover, our model predicts more significant welfare gains than a model without input-output networks and sectoral linkages.

Future development prospects for countries after signing the RCEP Agreement based on the GTAP Model

Subject. The article addresses impact factors for signing the RCEP Agreement (Regional Comprehensive Economic Partnership) on the macro- and microeconomic environment and economic consequences of India's refusal to sign the said Agreement. Objectives. The purpose is to assess the possible impact of signing the RCEP Agreement on the world economy. Methods. The study employs the GTAP Model from the perspective of tariffs. I created two scenarios to simulate and analyze the impact of signing the RCEP Agreement on GDP, changes in human well-being, import and export trade, and specific industries. Results. The study shows that import and export trade and changes in the welfare of RCEP member countries have increased, and the economies of Japan, South Korea, China, Australia and New Zealand have boosted production and improved terms of trade, while the economies of India and ASEAN have experienced a certain negative impact and deterioration in terms of trade. The economies of non-RCEP countries have experienced a negative effect in all aspects. Conclusions. The signing of the RCEP Agreement has a significant positive impact on the economic interests of the participating countries, especially on the developed economies (Japan, Korea and Australia). At the same time, negative values of China, India and ASEAN in terms of GDP and terms of trade may indicate that developing economies will have negative consequences at the initial stage of free trade. However, from the point of view of changing imports and exports, the signing of the RCEP Agreement may increase the overall level of well-being.

Regional Investigation for Economies of Development Status on Changes in Export Structure of Deterioration Terms of Trade

The theory of Deterioration Terms of Trade states that the terms of trade between primary commodities and manufactures have a negative deterministic trend. However, the terms of trade for primary commodities have improved significantly because of higher prices of raw materials and natural resources due to the rapid development of some emerging developing countries. Literatures argued that the deterioration in terms of trade is the type of country in which the goods are exported rather than the types of goods exported by such countries are primary or manufactured goods. This paper employs regression models of alternative economies to analyze the correlation between terms of trade and manufactured goods export ratio. Results demonstrated that the Prebisch-Singer Hypothesis holds for all the economies except the developed ones, and the ITTs are worsened by increases in the proportion of manufactured goods for all the economies.

An Austrian critique of the Prebisch-singer theory of the deterioration in the terms of trade

PurposeThis study aims to offer a critique of the theory of the deterioration in terms of trade, developed by Raúl Prebisch and Hans Singer.Design/methodology/approachAs an example of the theory’s shortcomings, the case of Argentina’s import substitution model is analyzed.FindingsThis study demonstrates how a misunderstanding of the influence of price variability in international trade may lead to the mistaken conclusion that protectionist measures must be enforced to achieve growth and prosperity.Originality/valueThis is the first study that criticizes the Prebisch-Singer theory of the deterioration in the terms of trade from an Austrian economics.

Ocena efektu Harbergera-Laursena-Metzlera w polskim sektorze rolno-żywnościowym

W opracowaniu podjęto problem oszacowania efektu Harbergera-Laursena-Metzlera w odniesieniu do polskiego sektora rolno-żywnościowego. Analiza obejmuje lata 2002-2017. W badaniu zastosowano metodykę wektorowej autoregresji (VAR). Wyniki studium ukazały, że trwałe pogorszenie terms of trade wpływa na poprawę bilansu handlowego polskiego sektora rolno-żywnościowego. Natomiast nie zidentyfikowano skutków krótkookresowych szoków terms of trade. Dodatkowo, badanie umożliwiło zidentyfikowanie wartości dodanej brutto (GVA) jako najbardziej egzogenicznej składowej systemu VAR. Najbardziej endogenicznym czynnikiem w modelu okazało się saldo obrotów bieżących. Długookresowe zmiany terms of trade są czynnikiem bardziej egzogenicznym niż saldo obrotów bieżących.

Effect of Terms of Trade on Economic Growth of China

This study investigates the effect of terms of trade (TOT) on the economic growth of China over the period 1980–2013. Autoregressive distributed lag (ARDL) model proposed by Pesaran, Shin, and Smith (2001, Journal of Applied Econometrics, 16(3), pp. 289–326) is applied for examining the short-run and long-run associations. The causality analysis between variables is analyzed by using Granger causality test and variance decomposition test. The ARDL model reveals that TOT significantly and adversely affect economic growth in the short run as well as in the long run. The results also imply positive short-run and long-run effect of labor and capital on the economic growth of China. The Granger causality results reveal significant bidirectional causal relationship between economic growth and capital, and between capital and labor force. The results show unidirectional causality from TOT to labor force. The variance decomposition results show that most of the innovation in economic growth is explained by its own innovation, while other variables have very small contributions to its innovations. The notable findings of the study suggest that TOT deterioration is relatively important for enhancing the economic growth of China.

Uneven Growth in the Extensive Margin: Explaining the Lag of Agricultural Economies

This paper documents that growth in the extensive margin is on average lower in the agricultural sector than in other activities. I introduce this new fact into a simple model of trade with expanding-variety growth, to show its relevance for regions specialized in the lagging sector. Diversity-loving consumers endogenously reduce the share of their expenditure devoted to that sector. The region specialized in it receives a decreasing share of world income, which results in diverging income and welfare trajectories with respect to the rest of the world. Appropriating a decreasing share of world value pushes downward the relative wage of the agricultural region and lowers the price of its exports relative to that of its imports, resulting in terms of trade deterioration. The prediction of falling terms of trade for the region specialized in the lagging agricultural sector is supported by empirical evidence and separates the results of my theory from those obtained in a similar model of uneven output growth between sectors. I present empirical evidence for the main testable results of the model. This theory is the first replicating these facts without the need of heterogeneous consumers or products, nor resorting to political or institutional explanations.

Free Falling Terms of Trade Despite Industrialization: The Case of Bangladesh

Considering Bangladesh’s successful industrialization, Bangladesh’s sharply deteriorating terms of trade (ToT) are a puzzle for the original Prebisch-Singer hypothesis. The Prebisch-Singer hypothesis suggested that countries exporting primary products will experience deteriorating ToT, while countries exporting manufacturing goods will experience ToT improvements. This paper provides an empirical review of Bangladesh’s ToT from 1980 to 2013. It reviews the theoretical literature explaining the Prebisch-Singer hypothesis and uses econometric analyses to determine some of the key factors for Bangladesh’s ToT deterioration. It shows that exchange rate devaluations and increases in export quantity have a negative impact on the ToT, while improvements in export quality have some positive impact on the ToT. In the case of Bangladesh, the problem however is that export quality has been decreasing, contributing to sharply falling ToT. The key policy implication is that export promotion policies need to be refined, focusing also on export quality, not only export quantity.

Unilateral Environmental Policy Choices

This paper demonstrates that the notion of environmental policy as a secondary trade barrier needs substantial modification when production pollution and consumption pollution coexist. The paper first focuses on local pollution and unilateral tax adjustments, showing that, under certain conditions, jointly increasing production taxes and consumption taxes to neutralize terms of trade effects raises welfare by more than consumption tax hikes alone in pursuit of terms of trade gains. Relatedly, this paper shows that production tax hikes alone resulting in terms of trade deterioration can increase welfare by more than that of the above policy mix. I then extend the analysis to the case where pollution emissions are global, showing that environmental policy as a secondary trade barrier can prevent emissions leakages and is therefore mutually welfare-improving. The main message of this paper is that regardless of whether pollution emissions are local or global, unilateral environmental policy is less harmful than previously thought, and a two-pronged policy approach relying on consumption taxes and production taxes is a good candidate for both unilateral and cooperative mitigation actions.

Harberger-Laursen-Metzler Effect with Modified Becker-Mulligan Preference by Dynamic Optimization

We investigate the effects of terms-of-trade shocks on the spending and current account where households with the modified Becker-Mulligan endogenous time preference maximize their utility over an infinite planning period. Our results show that, with the modified Becker-Mulligan preference, the effect of the deterioration in terms of trade on the current account depends on people’s characters. However, with the second preference we have considered, the deterioration in terms of trade will result in a current account deficit, which is the same as Obstfeld (1982), where households with Uzawa endogenous time preference are considered; deterioration in terms of trade leads to a decline in the current account. These theoretical results are consistent with the empirical evidence by numerical simulations.

Demographic Dividends in the ‘South’, Ageing ‘North’, and ‘South-South’ Trade Diversification

ABSTRACTThe absence of clear convergence in incomes per capita and welfare between the North and the South, even in the face of spectacular growth rates in GDP in the emerging South, might be due to a terms of trade deterioration resulting from an expansion of production in the South which depresses the product’s price on world markets. This may originate from a “technical catch up” and also from a “demographic dividend” in the South relative to an ageing North. This article illustrates that some South-South trade diversification might mitigate the terms of trade deterioration and increase welfare gains in the South. We use a multicountry overlapping-generation general equilibrium model to simulate the magnitude of the terms of trade effect due to a demographic dividend in Turkey, and show that some trade diversification away from EU toward the South is a welfare improving policy for Turkey.

Inter-regional endogenous growth under the impacts of demographic changes

This article attempts to project the economic paths for the individual Midwest states (Illinois, Indiana, Michigan, Ohio and Wisconsin, as well as the rest of the US) in the near future when the population ageing becomes more pronounced. To accomplish this task, a dynamic general equilibrium model is developed so that it could incorporate the inter-regional transactions and endogenous growth mechanisms within the framework of an Overlapping Generations (OLG) model. Key parameter values associated with the regional interconnections were assigned using a multi-regional Social Accounting Matrix (SAM) of the Midwest states. Two different steady-state results were presented with two different age-cohort population structures corresponding to year 2007 and 2030. These steady-state results imply that the rate of declining of per-capita output is projected to be heterogeneous across the regions due to different developments of age-cohort population structures and consequently different levels of endogenously determined educational investment of workers. Also, two steady-state simulation results revealed that the development of output price in a certain region reflects the dynamics of demographics of every region. Meanwhile, the dynamic simulation results reveal that the per-capita output of every region is projected to grow positively in the near future when the population ageing will be pronounced. However, the growth rate of the per-capita output is projected to be heterogeneous across the regions: the regions with high-skilled workers hold the potential threat that population ageing could give more negative impacts on the economy due to the relatively sluggish growth of human capital stock. Also, the dynamic simulation results show that certain regions in the Midwest will experience their terms of trade deterioration in the near future, implying that careful attention should be given to their future trade conditions.

Durable Goods, Time Preference and The Dynamics of the Current Account

A small open economy model with an endogenous time preference is used to study the current account dynamics when consumption exhibits durability. There is a unique level of instantaneous utility and stock of durables that must be maintained in the steady state. A terms of trade deterioration requires a net asset accumulation and a fall in consumption expenditures along the adjustment path. Nevertheless, the fall in consumption expenditures leads to a fall in the stock of durables, which has to be corrected somewhere along the adjustment path, and which may lead to a non-monotonic adjustment of the current account (J-curve).

Explaining Korea’s Lower Investment Levels After the Crisis

Summary This paper examines the reasons for Korea’s lower investment levels after the crisis of 1997–98 through estimation of an error correction model of real investment. The econometric results suggest that the fall in investment rates resulted from a decline in the long-run equilibrium value of investment rates due to a deterioration in terms of trade. They also show that recent investment levels are neither too high nor too low relative to the long-run equilibrium value. The variation in terms of trade seems to have pronounced effects on investment through its effect on corporate profits and cash flows in Korea.

Macroeconomic Income Adjustment and Tropical Forest Conservation: A General Equilibrium Analysis of Malaysia

This article examines the loss in “metered” aggregate income that could occur if Malaysia surrendered the lumber value of its tropical forest resources to nonlumber uses. We estimate these losses under a variety of assumptions about what “business as usual” and “conservation” might entail. We also consider the sensitivity of income losses to variations in our model's parameter values and to some of its maintained hypothesis. In a context where lumber's initial contribution to aggregate income is around 2 percent, we estimate that a switch from lumber to nonlumber uses of tropical forests could cost up to 4 percent of baseline income. Of broader significance is the implication that the associated dynamic general equilibrium multipliers are consistently greater than unity, and often close to two in value. These large income multipliers are observed despite an assumed recovery of income through the reallocation of mobile factors initially employed in lumber activities, and an increase in returns to capital. In this study, a terms of trade deterioration, prompted by the loss of lumber foreign exchange revenue, accounts for about one-half of the total income losses we observe. For economies that rely to a greater extent than Malaysia on lumber foreign exchange revenue, these terms of trade-induced losses could be more important still. From a policy perspective, our results provide a benchmark against which the contingent valuations and other imputations of the monetary value of nonlumber use values of tropical forests may be gauged.

Why Has Africa Grown Slowly?

We distinguish between policy and “destiny” explanations of Africa's slow growth during the past three decades. Policies were poor: high export taxation and inefficient public service delivery, and “destiny” was adverse: landlocked, tropical locations, and terms of trade deterioration. During the 1990s, Africa's economic policies improved, although with considerable variation both between countries and between policies: trade and exchange rate policies improved much more than service delivery. Thus, the differing explanations of past slow growth imply different predictions for growth in the coming decade. We argue that poor public economic services are likely to be the binding constraint.

Habits and durability in consumption, and the dynamics of the current account

A model in which consumption exhibits durability, and habits develop over the flow of services provided by them is used to study current account dynamics. Durability leads to adjacent substitutability in consumption, while habits are assumed to lead to adjacent complementarity. The adjustment of the current account may be non-monotonic. If habit effects are dominant in the short run, and durability effects in the long run, then after a terms of trade deterioration we will have a current account deficit followed by a surplus (the J-curve). In the opposite case a surplus will be followed by a deficit. © 1998 Elsevier Science B.V.

UNDERSTANDING PRIVATE SAVINGS BEHAVIOUR IN NIGERIA: AN EMPIRICAL ANALYSIS

The objective of this paper is to investigate the determinants of private savings in Nigeria. The core private savings model was estimated as well as its eclectic variants to provide insights into the behaviour of private savings in Nigeria. The results are quite illuminating. While some of the variables had their hypothesized signs, others were counter-intuitive. For instance, while our results repudiated the efficacy of financial liberalization as a tool for the mobilization of private savings, it substantiates the adverse effects of an external debt overhang and terms of trade deterioration on private savings. Finally, the paper recommends an enhancement in per-capita incomes and a stable macro economy to facilitate savings and cautions on the dangers of adopting foreign models uncritically.

Alternate adjustments to external shocks in Hungary

A multisector computable general equilibrium model is used to evaluate Hungary's response to the external price shocks in the 1970s. The model incorporates characteristics of Hungary's reformed socialist economy. The results show that although the deterioration in terms of trade was important, the policies of insulation of the economy and increases in investment had a much larger detrimental impact on the trade balance. The existence of planned CMEA trade reduced the effects of the price shocks on the trade deficit. Export promotion by means of higher export subsidies would not have been effective to reduce the trade deficit in Hungary.

A forecasting model of the Sri Lankan economy

A forecasting model of the Sri Lankan economy is developed and estimated. Both the within and post-sample tracking performances of the model are evaluated. The estimated structure is used to simulate the effects of selected exogenous shocks. The experimental results reveal that devaluation and terms of trade deterioration have contrasting implications for current account and budget deficit; and that world income growth and world inflation have opposite impacts on economic growth.