Economic Expansion and the Terms of Trade

  • Raveendra N. Batra


The analysis of interrelations between economic expansion and the terms of trade cannot boast of a long, uninterrupted history. Here and there one may come across a few scattered references to terms of trade in studies of the incidence of technological innovations on the growing country’s net gain from growth in the works of Mill [18], Edgeworth [9], Bastable [2] and Ohlin [19]; of the desirability of the policy of protection in the wake of technical improvements in what is known as the German tariff controversy;† of the celebrated transfer problem sparked primarily by Thornton [22] and Hume [14] and subsequently resurrected by Taussig [21] and Keynes [17] (in the famous debate over the German reparations problem); finally, of the impact of international capital movements featuring in the works of Fanno [10], Iverson [15] and Ohlin [19]. But the avowed application of the tools of general equilibrium analysis to the diagnosis of the behaviour of the terms of trade consequent upon growth is only a post-war phenomenon. Whatever ingenuity the problem of shifts in inter-country commodity prices elicited from the economist in the pre-war era was, with a few exceptions,‡ incidental; it arose not because of an interest in the application of economic theory to the problem of economic development, which itself never figured prominently in neo-classical writings, but was due to the economist’s preoccupation with some other issues of current importance wherein considerations of the terms of trade were unavoidable.


International Trade Home Country Technical Progress Unit Level Economic Expansion 
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© Raveendra N. Batra 1973

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  • Raveendra N. Batra

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