Improvement In Terms Of Trade Research Articles

Rethinking the balance-of-payments-constrained approach, in the light of the recent commodity boom

We develop a balance-of-payments-constrained growth (BPCG) model to explain the specific conditions of small commodity-dependent countries. Based on Thirlwall’s model and subsequent contributions, we elaborate a new model that assumes exogenous export prices, infinite price elasticity of export demand, and supply of commodities that react to prices with positive, but not infinite, elasticity. We contribute to explaining the central role of export prices and the relevance of price competitiveness in the growth dynamics. It is shown that a real devaluation and an improvement in terms of trade (TT) in a context of increasing international prices increase the equilibrium growth rate. However, export prices are more relevant than import prices in determining the growth of these countries, challenging the traditional interpretation of TT. Moreover, our model enriches the extensive literature which has corroborated that a development strategy based exclusively on increasing production capacity in commodity sectors is doomed to fail.

Do terms of trade affect economic growth? Robust evidence from India

AbstractThis study extends the previous empirics and conducts a comprehensive analysis of the effects of terms of trade (TOT) on economic growth in the large and emerging market economy, India, which experienced tremendous transformation from a persistently low‐growth economy in the 1950s–1970s to a moderate‐growth economy in the 1980s and then to a high‐growth economy, following the onset of inclusive economic reforms from the beginning 1990s. The TOT remained unfavourable during the 1950s, witnessed boom during the mid‐1960s to the mid‐1970s, showed sharp downturn during the mid‐1970s to the mid‐1980s, and then displayed deteriorations again from the late 1990s to 2017–2018. The model estimated in one‐regime setting with no structural break and in a sample‐split setting with multiple structural breaks—over both “long” and “short” time periods—supports the presence of cointegration among variables and suggests the positive and significant long‐run effects of TOT on economic growth. The diversification of trade, the continual improvements in the quality of export products, and the development of high value‐added industries are essentially crucial to induce long‐term improvements in TOT. The improvements in TOT need to be accompanied by the development of financial sector, expansion of external trade, and acceleration of domestic investment.

Commodity prices and economic growth in commodity-dependent countries: New evidence from nonlinear and asymmetric analysis

The aim of this paper is to present our examination of the short and long-term asymmetric effects of commodity prices on output per capita within the framework of commodity-dependent countries. First, we adopted a panel Autoregressive Distributive Lag (panel-ARDL) model to disentangle the short and long-term symmetric effects. Our results show that commodity booms have long-term resource blessing effects. In the same way, short-term impacts tend to be positive due to improvements in terms of trade. Moreover, our empirical results provide evidence that the effects of the recent commodities boom (2004–2014) differ from those of previous such phenomena, indicating a learning effect from past experiences. Second, using an innovative panel nonlinear ARDL model, we also examined the short and long-term asymmetric effects of commodity prices on growth by decomposing the commodity price index into positive and negative changes. Our findings provide evidence for the existence of asymmetric effects of commodity price shocks. In the long run, positive changes have greater impacts than negative ones on GDP per capita. Further, our results show that, in the short run, growth is only affected by negative shocks, as the impacts of positive ones are insignificant. Based on our findings, we present implications for policy makers.

Covariability of real exchange rates and fundamentals

We study low-frequency correlations between real exchange rates (RERs) and fundamentals using historical data starting in 1870. Increases in real GDP per capita – a proxy for the Balassa–Samuelson effect – and terms of trade improvements in the United States relative to advanced economies are associated with stronger US dollar RERs, as predicted by economic theory. For several other fundamentals considered in the literature, we find no evidence of robust low-frequency correlations with RERs.

DECONSTRUCTING DE-GLOBALISATION AS A CHALLENGE USING SAP-LAP ANALYTICAL MODEL: A CASE STUDY OF INDIAN ECONOMY

In the years prior to 2008, that is before the global financial crisis, emerging market economies saw vigorous global demand, substantial improvements in terms of trade and abundant capital inflows. However, trade growth has been frail, after the financial crisis and whether this movement is permanent or temporary still needs an answer. It has been found that the world is moving, towards the de-globalisation era and the developed nations have marked its instigation. The United States and Britain have adopted the policy leading to the disassembling of the globalisation period and the trend has now been passed on towards India. In the current study, SAP-LAP analytical model has been used to understand the variables that have brought the shift in paradigm towards deglobalisation in India. The objective of the study is to apply SAP-LAP framework to analyse the determinants consisting of ‘situation’, ‘actors’ and ‘processes’ and ‘learning’, ‘action’, ‘performance’ leading to de-globalisation in the Indian context. This modelling technique will help in listing key learning issues and will suggest necessary actions to be taken to improve selected performance areas

English

The Ghanaian Cedi has recently experienced persistent depreciation against its major trading partners. This paper investigates the contribution of inflation and monetary policy in this persistent depreciation. The paper makes use of the Autoregressive Distributed Lag (ARDL) and Bounds test of cointegration and the Toda and Yamamoto (1995) Augmented Granger Causality test to determine the long and short-run dynamics of the impact of monetary policy and inflation on exchange rates in Ghana, using data ranging from 1970 to 2017. The paper finds a short-run depreciation effect of contractionary monetary policy on the exchange rate, reflecting the exchange rate puzzle. The long-run results however show an appreciating effect. Inflation is also found to depreciate the currency both in the short and long-run. The causality tests also reveal a bi-directional relationship between the exchange rate and the inflation rate, while a unidirectional causal relationship exists between monetary policy and the exchange rate. The paper recommends that inflation stabilization policies should be prioritized in Ghana, as a means to curb the rising exchange rates. Improvement in terms of trade through export value promotion should also be given the needed attention as this is found to appreciate the currency in the long-run.   Key words: Exchange rate, inflation, money supply, Autoregressive Distributed Lag (ARDL), cointegration, Ghana.

Dependency Model with Congestion and Tourism

This paper presents results regarding the impact of regional and international tourism on the welfare of the domestic economy in the presence of congestion. The model used for this purpose is the dependency model of trade. Three main results are obtained from our investigation. First, it is established that an increase in regional tourism is welfare enhancing in the absence of congestion externalities due to an improvement in the tertiary terms of trade. Second, it is shown that in the presence of congestion, the welfare effect of an increase in tourism is ambiguous as there are three effects: 1) an improvement in the tertiary terms of trade, 2) a congestion effect and 3) a favorable effect on congestion via a decline in it due to the price effect. To correct the distortions policy intervention is required. This takes the form of two simultaneous policies: a tax on the goods consumed by the tourists and a tax on congestion by creating property rights. The results are of great significance for policy making.

Términos de Intercambio, cuenta capital y el modelo de crecimiento restringido por la balanza de pagos: un análisis empírico

Este artículo se enmarca en los estudios del crecimiento económico restringido por el sector externo en economías con estructuras heterogéneas. Siguiendo el trabajo reciente de Médici y Panigo (2015), se busca brindar evidencia empírica sobre la existencia de efectos omitidos de los términos de intercambio (TDI) en la balanza de pagos de economías concentradas en la explotación de recursos naturales. Según este modelo, la mejora de los TDI no solo tiene efectos positivos al relajar la restricción externa por la cuenta corriente, sino también efectos negativos mediante la salida de divisas por la cuenta capital.

An Empirical Assessment of the Nexus between Terms of Trade and Inflation in Bangladesh

Terms of Trade is inextricably linked to the export performance of countries like Bangladesh that have heavily banked on their respective export sector. This paper empirically examines the nexus between terms of trade improvement and possible inflationary pressures associated using annual time series data over 1980 to 2014. This study is especially important in the context of LDC graduation of Bangladesh and loss of preferential market treatment in important markets. As a result, better terms of trade can play a key role in strengthening export competiveness and raising export volumes. In light of the estimated results in this study, an inverted-U shaped non-linear association between terms of trade improvement and inflation is unearthed. The finding can be a starting point for Bangladesh to adopt relevant export- boosting policies via terms of trade enhancement without the fear of triggering inflationary pressures.

The Impact of Commodity Terms of Trade in Africa

The sharp increase in commodity prices that began in the early 2000s resulted in a marked improvement in terms of trade for Africa. Since then, commodity exporters’ terms of trade have declined despite a very moderate recovery in mid-2016. Terms of trade still remain higher than they were at the turn of the century, giving the false impression that conditions still favor Africa. The evidence, however, suggests that the commodity-driven prosperity has ended or, at best, has been interrupted for a long time to come. Some of these losses have not been realized fully because of unsustainable macroeconomic and foreign borrowing policies. These policies cannot be sustained, and the actual losses will catch up even if terms of trade do not deteriorate further. The complacency engendered by the relatively high gross domestic product (GDP) growth rates is misplaced, given the very rapid rate of population growth in Africa both in absolute terms and as compared to most other regions of the world. On the basis of the analysis presented in this article, a further decline or even stable terms of trade can be expected to have a significant negative effect on African economies. Many policymakers believe they are choosing between continued growth on the basis of present policies, or painful adjustment, usually imposed from outside. However, adjustment is inevitable. The real choice is between orderly and internationally supported correction and disorderly and disruptive crisis if current policies continue. It is imperative for the African countries, both highly concentrated exporters and more diversified economies, to focus on macroeconomic sustainability. In today’s adverse circumstances, and particularly given the fragile fiscal positions and mounting debts of many African countries, these policies are only possible if the economy adjusts to a sustainable path. Time is of the essence, and a conscious break with a policy of short-sighted comfort is required.

Does Harberger–Laursen–Metzler (HLM) Exist in Pakistan? Cointegration, Causality and Forecast Error Variance Decomposition Tests

This article investigates the validation of Harberger–Laursen–Metzler hypothesis using Pakistani data over the period of 1978Q1–2012Q4. We have used Gregory–Hansen cointegration approach accommodating structural break in the series. The results confirm the presence of cointegration between the variables. The impact of terms of trade is positive on Pakistan’s trade balance. Domestic income improves local trade balance. Foreign income has a positive impact on Pakistan’s trade balance. The causality analysis indicates the presence of feedback effect between terms of trade and trade balance. Domestic income Granger causes trade balance. The unidirectional causality is running from foreign income to Pakistan’s trade balance. This study opens up new directions for policymakers for improvements in terms of trade to sustain trade balance in Pakistan.

Is the Decline in Inequality in Latin America Here to Stay?

The 2000s decade represented a turning point in the increasing inequality trend that had been observed in Latin America during the second half of the twentieth century. This paper offers an analysis of the association between these shifts and short-, medium- and long-term factors. For our exploration we assemble a database on income distribution indicators systematically calculated directly from household surveys with emphasis on within-country consistency, methodology, definitions and coverage for the 1980–2013 years. This database allows observing clearly that the increases in inequality throughout the 1980s and 1990s decades have been counteracted by the improvements in the 2000s and the initial years of the 2010 decades. From our econometric exploration we find that (a) while there are short-term forces that are associated with underlying improvements in the distribution—including human capital accumulation and declines in the population dependency rate, (b) medium-term factors that could have been inequality-increasing in the past ameliorated their effect in the 2000s years—namely, the effect of the trade reforms of the 1980s which faded away toward the end of the past century and (c) there are two short-term forces that might have played an important progressive role during the 2000s years, but that could shift in the opposite direction in the near future—namely, the improvement in terms of trade and the declining returns to schooling. Thus, we conclude that the improvement in income distribution in the region could be only a temporary phenomenon.

Um procedimento para prever recessões no Brasil a partir de indicadores antecedentes

Resumo O objetivo deste artigo é testar, para o Brasil, uma nova abordagem de previsão de recessão que vem sendo proposta por autores oriundos de outros campos de pesquisa, como a física, e que pode ser útil para prever eventos extremos também na economia. Com a série de desemprego (de 1985 a 2012) suavizada a partir de splines, visa-se reconhecer, via análise fractal, indícios de uma mudança em sua tendência, a partir do desempenho passado. Após isso, utiliza-se a metodologia de análise discriminante para identificar as séries que apresentam comovimento com a série do desemprego. Concluiu-se que períodos de crescimento do desemprego são, em geral, precedidos em cerca de um ano por melhorias nas relações de troca, aumento das importações e queda dos salários mínimos reais em PPC.

Endogenous Cycles in Rural to Urban Migration

We argue that the cost of rural–urban migration may act as an effective entry deterrence for successful migration to the urban sector. This cost results in some form of price rationing as the cash holding of a typical rural household falls short of the required cost. We demonstrate that certain endogenous forces will mesh in with the government policies to generate cumulative improvements in terms of trade in favour of the rural sector. Such improvements in terms of trade are shown to close the gap between the cost and the cash holding of a rural household. As a result, the rate of migration is positively related to the improvements in terms of trade in favour of agriculture. On the other hand, the terms of trade are shown to be inversely related to the rate of migration from agriculture. We establish, for the first time to the best of our understanding, that an endogenously driven and self-sustaining migration cycle would emerge from the rich dynamics involving migration flows and intersectoral terms of trade. We also demonstrates the possibility of a complex dynamics that can characterize the rural–urban migration and the attending development process. One can argue, on the basis of this type of complex dynamics, development process can be unpredictable and highly fragile. In other words, the principles of econophysics can offer an important new framework to understand labour flows in a complex society. JEL: J31, C78

Behavior of input cost and output prices of selected crops of Gujarat: A comparativeanalysis

An attempt has been made to compare the input cost and output prices of selected major five crops namely castor, tobacco (bidi), tobacco (calcutti), gram, groundnut, and maize of Gujarat State. The positive and significantly higher growth rate was found for output prices in comparison to total input cost in most of the crops selected for the study. The results of the instability index for output prices was found to be low. The high growth and low instability index indicates sustainability in production of these crops, which is the prerequisite for the state. The trend in indices of terms of trade or parity indices reveals that the improvement in terms of trade was in favour of farmers in the case of castor, groundnut, and maize, which needs to be sustained, where as in the case of Tobacco (Bidi), Tobacco (Calcutti) and gram the parity indices was not much in favour of farmers in last ten years. This clearly indicates that the prices received for output was not increased in proportion to the prices paid for inputs in case of tobacco (Bidi), tobacco (Calcutti) and gram crops.

Real Exchange Rate Volatility on the Short- and Long-Run Trade Dynamics in Colombia

The short- and long-run implications of real exchange rate volatility on Colombian bilateral trade commodities and non-commodities with its major trade partners are analyzed from the perspectives of the Marshall-Lerner condition, a cointegration relation with other aggregate variables, and the J-curve hypothesis. Long-run equilibrium on the Colombian bilateral balance of trade with a country is more common when the trade volume is denominated in terms of one of the world's main currencies—as is the case of commodity trade and trade with a country whose national currency is one of these currencies. No evidence of the J-curve was found in any of the analyzed Colombian bilateral balances of trade. Opposite to the predictions of the J-curve hypothesis, more common are the scenarios of short-run improvements in the bilateral trade balances following a devaluation than are those with instantaneous declines. Improvements in the terms of trade are found to have a long-run deteriorating impact on the Colombian balance of trade, especially in the case of non-commodity trade. Policy makers should consider that continuous improvements in the Colombian terms of trade, as the ones recently observed, will ultimately be a detriment to the country's current balance of trade surplus.

Can the ageing North benefit from expanding trade with the South?

In this paper we estimate the benefit for the ageing North countries of diversifying some of their trade away from other North countries in favour of South countries. To this end we use a six-region overlapping generations model that takes into account the demographic trends of the 21st century and trade patterns. We show that ageing North countries can benefit from “enriching decay” through significant improvement in terms of trade. We estimate to what extent enriching decay can be bolstered if the North expands trade with the South. In Europe and Japan, for instance, an appropriate trade diversification strategy may prop up real per capita consumption by 2% and 2.4% respectively.

Choques macroeconómicos y los precios de los activos. El caso argentino

This paper analyses the effects of external and domestic shocks on urban property prices and stock prices on the Argentinian economy. The paper employs SVAR models, with short-term restrictions, and quarterly data from 1993 to 2012. The results show that improvements in terms of trade and economic growth caused asset prices to rise. It also highlights the role of other macroeconomic shocks (GDP deflator, interest rates and real exchange rate), to explain the variability of these prices. Unlike in advanced economies, such as the United States, where certain asset prices accompany the expansion of credit, in Argentina these prices are more related to improvements in terms of trade and growth.

Rice Yield Gap between Myanmar and Vietnam: A Matter of Price Policy or Public Investment in Technology?

This paper examines the rice yield gap between Myanmar and Vietnam, two countries that show a stark contrast in terms of rice production in the past two decades. It considers the impact on yield of price policies and public investments in production technology. While domestic rice prices were once controlled in both countries, no clear deterioration or improvement in terms of trade for rice producers were confirmed in the past two decades. Rather, the widening yield gap in this period might be attributable to differences in technological changes due to public investments. It is implied that Myanmar needs more effective public investments in agriculture to upgrade production technology. Furthermore, the experience of the two countries suggests that delegating the budget to local governments might raise the effectiveness of public investments.

Regional Productive Complementarity and Competitiveness

A positive international environment favors growth of the several economies in a given region, but it does not assure that the differences in the economic potential of the several countries are reduced in this process. Alternatively, the presence of productive complementarities might foster competitiveness and contribute to increasing the degree of homogeneity, even in situations of adverse terms of trade. This article reviews the experience of six sub-regional groups in Asia and Latin America in the last two decades. Latin America has recently benefitted from significant improvement in terms of trade and yet the economies in that region remain as different in their relative economic potential as they were in the beginning of the 1990s. In Asia, however, the negative impact of terms of trade has not blocked a quite fast pace of GDP growth; furthermore, productive complementarity has led to an increasing convergence of the several economies, with a sharp increase in their share of the international market. There are clear lessons from the Asian experience.